Kakao Con, Kakao’s new token, will also be subject to new law
As soon as Kakao Con, Kakao’s new reward token and Klaytn’s Klay token are exchangeable, Kakao Con will be subject to the Act On Reporting And Using Specified Financial Transaction Information, according to attorney Kwon Dan from Hanbyol Law. “As the law’s scope of regulation is too broad, the revised bill still needs to be supplemented,” Kwon said during a blockchain seminar held Monday. The revised bill was discussed at the National Assembly last Thursday, but is still pending as it was not passed by the standing committee. What’s included in the revised bill? The bill offers a definition of virtual assets and what constitute such assets. Under the legislation, a virtual asset refers to digital token of value that can be exchanged or transferred by digital means. However, virtual assets do not include both tangible and intangible outcomes earned through games, like points and tokens, and electronic prepayment means like OK Cashbag. It also does not include digital tokens that cannot be exchanged with currency or a digital token with use limited by the token issuer. Virtual asset exchanges include those that handle virtual assets, such as purchasing or selling virtual assets or mediating the exchange of one virtual currency for another, are covered. Once an entity is categorized as virtual asset exchange, it is obliged to report itself as an exchange, use real-name accounts and abide by guidelines set up to prevent money laundering or financing for terrorism. Who will be subject to the law? According to Kwon, in the case of Kakao, Klay will be subject to the law, but Kakao Pay and Kakao Con will not be. However, if Kakao makes Kakao Con exchangeable with Klay, Kakao Con will also be subject to the law. Stable coins like Libra, Tether and Terra are also likely to be regulated, as they are issued to replace cash. Among virtual asset wallets, the law will be effective if the wallet keeps individual keys. Wallets that make individual users keep their won keys, like Nova and MetaMask, will not be affected by the law. Privacy coins like Dash and Zcash will obviously be regulated by the law. In the case of decentralized applications (DApp), the law will be in effect if there is an owner or operator of DApp that takes commissions or if the DApp exchanges or transfers value or mediates exchange of value. Peer-to-peer exchanges will not be subject to the law, as it is direct exchange between individuals. Decentralized exchanges, however, will be subject to the regulation. Companies puzzled by law that goes beyond FATF guidelines There are concerns that companies can struggle if the revised bill is passed, since it is broader in scope than guidelines recommended by the intergovernmental Financial Action Task Force (FATF). “FATF has excluded legal currency, securities and financial products from virtual assets, but the revised bill includes all of them,” Kwon said. “Companies pursuing initial coin offerings are also not subject to guidelines by FATF, but the local revised bill regulates them.” Kwon also added that the revised bill lacks predictability and is vague. The law is also largely dependent on discretion by regulating authorities. As regulators have discretionary power to decide whether to accept or reject business registrations of companies, this is likely to create an air of anxiety in the market. As start-ups are less capable of responding to various situations compared to conglomerates, they could struggle even more than large companies. Uncertainties regarding the regulation partly lifted There are some positive views on the revised bill, though, in that it relieves some of the uncertainties regarding market regulations. “It is a positive factor in that if there is a clear guideline, the virtual asset market could expand,” Kwon said.