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Revised Korea financial legislation enforcement to be focused only on AML

It’s been six months since the Act on Reporting and Using Specific Financial Transaction Information passed the National Assembly in March. However, the enforcement decree, which includes details on the legislation, remains absent. The Financial Intelligence Unit (FIU) said it is considering making the final touches to the decree after meeting with industry officials. However, there are concerns that even if the details of the revised act are created, it is likely to have a major negative impact on the industry as it is focused more toward regulations than helping expand the industry. Especially as the enforcement decree is focused more on anti-money laundering (AML), there are those that say that it will fail to cover all of the cryptocurrency industry. #Low expectations Cho Jung-hee, a lawyer at Shin & Kim LLC, during an online seminar on the role of the revised legislation on Sept. 10 advised not against having high hopes for the enforcement decree. “While the industry has expectation [that the enforcement decree] create a regulatory standard, in truth it is limited to anti-money laundering,” Cho said. “Since the enforcement decree regulates only issues authorized by the revised legislation, its role will not exceed those limits.” The lawyer said excessive regulatory action will be unlikely as the means of regulating will not exceed the legal purpose. Cho said the enforcement decree should be specific on the legal boundary of cryptocurrency issuers’ act of attracting investors on certain virtual assets or the act of acquisition, arrangement and mediation in relations to revenue. While these roles are currently taken up by individual virtual asset issuers or the exchange operators, even those that help in issuing virtual assets should be labeled as virtual asset businesses, to which the revised legislation will be applied, in order to lower the risks of money laundering. #Offshore businesses not included…Applying travel rule should be on hold Another controversial issue is whether to include offshore businesses in regards to the wiring process. On this issue, Cho said that under the revised legislation, offshore businesses are not included in the financial companies covered by the law. The lawyer said this is reasonable considering that there could be an overlap as each and every country has its own regulations. There is also a possibility of jurisdiction clashes. There is also a debate on the travel rule, which requires information to be collected not only of the sender, but also the recipient. While it is not difficult to secure information of the sender, it’s not easy to get clear information on the recipient. While some local companies are providing solutions through telecommunication firms’ services of self-verification, it isn’t easy for people living abroad. Cho said the enforcement decree should hold its position until an international standard on the travel rule is decided. #Real-name accounts, exchange operator burden to increase The most controversial issue is that the standard on depositing and wiring virtual assets from real-name accounts is extremely stringent. Also there is the possibility of the banking industry refusing to open accounts, which makes resolving the issue that much more difficult. The revised legislation mandates that cryptocurrency businesses confirm clients, report suspicious transactions and transactions of large amounts of cash, which is the same rule applied to existing financial companies. However, an additional burden is placed on virtual asset businesses as they will have to have a separate transaction record for each and every user. Because a stricter standard is applied on virtual asset businesses, the need for existing financial companies to directly monitor client’s money laundering is unlikely. However, if the financial companies are to personally confirm such illicit acts, it will likely raise the possibility of the financial companies refusing to open an account. As such, more careful review is necessary. Korea Finance ICT Convergence Association Chairman Oh Jung-geun said he has proposed changing the analog regulation to digital. “The current anti-money laundering prevention system, while having massive amounts of money going in, has such a low success ratio in spotting illegal money, at 1 percent,” Oh said. “[The preventive system] should be changed where a digital monitoring system is set up and the FIU detect irregular financial patterns and report the anomaly to the financial companies.”

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