A look at Korea’s Act on Reporting and Using Specified Financial Transaction Information through the lens of Japan
Japan’s National Diet passed a reform bill on Financial Instruments and Exchange Act and the Payment Services Act on May 31, 2019. The reform bill was roughly a year ahead of its time considering Korea’s own Act on Reporting and Using Specified Financial Transaction Information passed the National Assembly on March 5. In Japan, the incorporating of cryptocurrency into the legal system started even before the reform bill was enforced on May 1, including BitMEX limiting the access to users from Japan. # What’s in the enforcement decree? Usually, when a bill is passed, the enforcement decree is made before the new regulations are enacted. In the process, details on the regulation are ironed out. So what kind of enforcement decrees are included in Japan’s reform bills? Japan’s Financial Instruments and Exchange Act defines cryptocurrency as a financial product and has regulatory details on cryptocurrency-related derivatives and antitrust activities. One thing that’s noticeable is the rule limiting the leverage in cryptocurrency margin trading to twice the trader’s deposit. This has been upped from the initial plan of limiting the leverage to quadruple the trader’s deposit. BitMEX, which is one of the world’s leading exchanges especially known for its margin trading, on April 28 announced that stating May 1 it was limiting its services to Japanese customers. Under the Payment Services Act, the term “virtual currency” was changed to “crypto asset.” Additionally, it includes crypto asset custody services in which crypto exchange operators have to entrust user funds to third-party operators such as trust companies. The cryptocurrency exchanges will be allowed to provide hot wallets. But to protect customer rights on reimbursement, they have to have the same kind and same quantities of crypto assets. The crypto asset exchange service providers are banned from making any false advertisements. Cryptocurrency custody service providers are also subject to the new regulations. The enforcement decree regulates cryptocurrency businesses while protecting users. Especially as a Korean court case has been mentioned in regards to the customer reimbursement issue, there’s a need to look into the issue before creating details on Korea’s reform bill. # Reaction in Korea? As Korea’s enforcement decree is to be created in regards to its own Act on Reporting and Using Specified Financial Transaction Information, it is using Japan’s experience as reference. The Korean National Assembly Research Service on April 28 released a report analyzing Japan’s toughened regulations on protecting users of crypto assets. In the analysis, the study proposed Korea’s measures in protecting cryptocurrency service users. It noted that while parts of the related regulations, including the information security management system, have been adopted, there’s a need to take more specific action in protecting the users. The study noted that while caution has to be taken in acknowledging virtual assets as financial products as it could mean the official recognizing of virtual assets, the Korean authority should closely review implementing Japan’s enforcement decrees from Japan’s Financial Instruments and Exchange Act and the Payment Services Act in protecting the users against price manipulation.