Five years in jail for operating an illegal exchange — will it work?
The first step toward putting legal boundaries around cryptocurrency exchanges has been taken. The National Assembly’s national policy committee on Wednesday passed legislation on operating a cryptocurrency exchange, and the law will be under evaluation moving forward. But, it’s not that a special law was made just for operating cryptocurrency exchanges. Instead, exchanges were included in legislation for financial markets. There will need to be a specialized law made for the positive growth of the cryptocurrency industry. What’s different with this special law? The Special Securities Law is basically related to financial transactions, which means cryptocurrency trading is not included. The new law includes cryptocurrency trading and classifies cryptocurrencies like Bitcoin and Ethereum as virtual assets. Cryptocurrency exchanges must report As cryptocurrencies are now covered by legislation, an exchange must report its name and its head, along with the place of business and contact information to the Korea Financial Intelligence Unit. The exchange must also separately manage its own assets and clients’ assets and be certified for its information security management system (ISMS). Operating the exchange isn’t possible if that information isn’t reported, and operators can be penalized. Up to five years in jail Even if an exchange is properly reported, if the content is not correct, the exchange can be stopped from operating and the owner could get up to 5 years in prison or a fine of 50 million won. If the exchange was operating before the law came into effect, the exchange must report within six months of the law being enforced. A green light at the discretion of the authorities The new law is basically similar to the one proposed by Rep. Kim Byung-wook in March this year, but some parts of it were changed while being evaluated. Now, the cryptocurrency exchange is categorized as a business, like how securities companies are classified under capital market law and how casino companies are considered businesses in laws related to tourism. But the law is controversial for not including self-identification for transactions. That part is expected to be added later. First steps The new legislation needs to go through another set of evaluations and discussions before being actually enacted. The next discussion on the law is set to take place on Monday. When the law comes into effect, numerous unstable exchanges are set to disappear. Some of them were called into question for not operating as even the most basic securities company — separately managing clients’ assets. Tricksters are likely to disappear as exchanges not meeting qualifications will not be allowed to operate. Yet, it will still be controversial moving forward as the law doesn’t include guidelines on self-identification for transaction accounts. The qualifications could be too complicated, which will prevent any exchange from getting an account in the first place. Authorities need to actively communicate with the industry to set reasonable guidelines on issuing them.