[Korea finance act] ①It's in the regulatory fence anyway
[Korea finance act passes… What happens to the market?] Korea passed new legislation that provides a framework for the regulation of cryptocurrencies and crypto exchanges during a special session Thursday. It is the first such law in Korea. Join:D will discuss the legislation’s impact on blockchain and the cryptocurrency industry in a four-part series. #What are the origins of the Korea finance act? It all started with the guidelines from the Financial Action Task Force (FATF). The intergovernmental organization is a task force that was formed to develop financial guidelines for international transactions. It was founded in 1989 at the behest of G7 to focus on money laundering. Back then, drug-money was the most important issue. Terrorism financing became the main focus after 2001, and the task force later moved to the financing of weapons of mass destruction, corruption and cross-border payments. It has been expanding its scope by making changes to its guidelines. The FATF has had its eye on cryptocurrencies since 2015, as the task force saw the potential for this new medium becoming a means of money-laundering. As the number of crimes involving cryptocurrencies increased, it rolled up its sleeves and started taking action in 2018. The task force categorized cryptocurrencies as virtual assets in its guideline revision in October 2018 and started additional efforts to prohibit related money-laundering activities. In June 2019, the FATF announced a new guideline for virtual assets and virtual asset service providers with necessary revisions. Former FATF President Marshall Billingslea then emphasized the importance of the guidelines, saying lack of coherent standards could undermine the international financial system as a whole. Korea’s new law revision started gaining momentum in light of an FATF’s evaluation slated for this year. Every 10 years, the task force orders the evaluation of its 35 participating countries. Member states evaluate other member states on their adherence to the FATF guidelines. The scope has been expanded to include whether member states have come up with regulations on cryptocurrencies in accordance with the FATF guidelines. #Should the FATF guideline be followed The FATF guidelines are not legally binding. But if they are not followed, a member country could be blacklisted by the task force and be barred from engaging in financial transactions with most countries. For example, BNP Paribas, the largest bank in France, was fined $8.97 billion by the U.S. government in June 2014 for ignoring regulations and effecting financial transactions with Iran, Sudan and Cuba. The fine forced the French bank to report the largest net loss in its history, of around 6 trillion won, and took down the chairman. If the Korean government and its financial institutions want to engage in international transactions, they are compelled to follow the FATF guidelines. The guidelines are not legally binding, but if not followed, a country could be isolated in terms of financial transactions. #FSC steps up to stay in game After the revised FATF guidelines were agreed upon at the G20 Summit in December 2018, the Korean government immediately had to follow them. The Financial Services Commission was on it right away. But, passing the revised legislation to include cryptocurrency took much longer than expected. If a law is to be approved, it has to go through a number of committees and legislative bodies. Last year, the matter was not even discussed in the National Assembly, crowded out by more pressing issues. The legislation finally reached the first committee in October last year. Four items on the listed of needed changes were approved at the third committee on Nov. 25. The legislative fix was awaiting approval by the National Assembly legislation and judiciary committee on Feb. 26, but the matter was approved on March 4. The committee was busy taking care of coronavirus-related legislation. The law was finally approved for good at the plenary session Thursday. It met the FATF guideline as much as possible, including those related to travel and licensing. #What’s in the fix The revision to the Korea finance act defines virtual assets and virtual asset service providers. It also requires cryptocurrency business operators to register as businesses while creating a policy that requires them to get Information Security Management System (ISMS) certifications. The legislative fix now requires those engaged in cryptocurrency trading to use their real names in making transactions, while requiring businesses to check the identity of users. The revision is set to take effect in March 2021, a full year after the legislation was passed.