On December 28, 2017, the Korean joint task force on cryptocurrency, consisting of various governmental agencies including the Office for Government Policy Coordination, Financial Supervisory Commission, the Ministry of Justice and the Ministry of Strategy and Finance, among others, announced that it will continue its implementation of its previously announced emergency measures on December 13, 2017 (for more information, please see BKL’s 12/14 newsletter), and in addition take the following actions.
1. Prohibition on the provision of banking services to non-compliant cryptocurrency exchanges
On December 13, 2017, the Korean government announced emergency measures in response to the increasingly speculative domestic cryptocurrency market, including restrictions on the participation of minors, foreigners and financial institutions on domestic cryptocurrency exchanges (each, an “Exchange”).
On December 28, 2017, the Korean government stated that it will further instruct domestic financial institutions to refrain from providing remittance services to Exchanges that are found to be in violation of the above restrictions. This is intended to ensure the Exchanges’ compliance with such restrictions, failing which a non-compliant Exchange’s ability to operate would be compromised.
Furthermore, the Korean Fair Trade Commission and other relevant governmental agencies may conduct on-site inspections of the Exchanges in order to verify their compliance with the consumer protection regulations as well as to ensure the adequacy of the IT and security systems maintained by an Exchange. Violations will be reported to the Exchange’s bank, which would then consider the suspension of remittance services to the Exchange.
2. Closure of Exchanges
The Ministry of Justice has proposed the establishment of a “special law” which would grant the Korean government the ability to order to closure of an Exchange.
However, we note that the particulars of any such “special law” have not been determined and no draft legislation or proposal has yet to be made. The government is in the process of deliberating the merits and necessity of a “special law” and consequently, we cannot state when any such “special law” would be enacted or in what form, if at all.
3. Enhancement of Personal Identification Procedures
The Exchanges currently provide each user (or customer) with a “virtual” bank account held under the name of the Exchange. Any deposits or withdrawals made by a user are typically made from the user’s bank account to the user’s “virtual” bank account held by the Exchange.
This meant that the user’s bank account and the user’s “virtual” bank account could be maintained at separate banking institutions, and due to this discrepancy, the bank of the “virtual” account would have limited access to the user’s personal information.
Previously on September 9, 2017, the Korean government had issued guidelines instructing domestic banking institutions to refrain from processing deposits or withdrawals to Exchanges for users whose personal identity could not be verified. On December 28, 2017, the Korean government has taken the additional step of prohibiting the practice of utilizing “virtual” bank accounts. In the future, in order to access an Exchange, a user must maintain a bank account in their name, at the same bank as that of the Exchange.
By requiring the “sameness” of the bank accounts of the user and the Exchange, the Korean government seeks to ensure that banking institutions utilized by the Exchanges have greater access to a user’s personal information as well as transaction history. This would facilitate the banks’ compliance with the verification of personal identity requirements as well as increase their ability to detect any non-compliance with the age and nationality restrictions and illegal or fraudulent activities, such as money laundering.
The Korean government will provide further details, including how “virtual” bank accounts for existing users, will be transferred to new bank accounts at a later date.
4. Online Marketing Regulations/Miscellaneous
The Korean government has stated its intention to implement certain voluntary measures to limit the Exchanges’ online marketing and advertising activities, such as through portal websites. In addition, the Korean government emphasized its intention to strictly enforce cryptocurrency related regulations and punish violators.
This update is intended as a summary news report only, and not as advice. For legal advice, please inquire with your contact at Bae, Kim & Lee LLC, or the following authors of this bulletin:
Jae In LEE