South Korea is heading into a new period for its crypto industry, with stringent new rules coming into effect on Thursday that will require all cryptocurrency businesses to comply with new crypto reporting regulations and registration rules.
As an article from the Korea Herald outlines, industry experts fear that the impact of the new measures — specifically, the incoming Specific Financial Transactions Act — will have damaging consequences for most domestic cryptocurrency firms. The act requires all virtual asset operators to seek official registration, for which they must show evidence that they are operating using real-name accounts at South Korean banks.
While this is intended to prevent financial crimes such as money laundering, the vast majority of smaller-scale crypto firms have reportedly thus far been unable to forge partnerships with local financial institutions. Koo Tae-eon, a layer specializing in tech firms, told the Herald:
“Since the promulgation of the law a year ago until now, so many crypto exchanges have tried to abide by the new law by getting real-name accounts from the local banks, but it didn‘t work. Even those that are equipped with an information security management system and have CEOs with no criminal records were not able to forge a partnership with banks.”
Koo added that the new law, which fails to differentiate between crypto firms of different types and sizes, risks pushing smaller firms "into a corner" and creating a market in which only the four largest exchanges are able to operate in a compliant manner. Out of over 100 local exchanges, four is exactly the number of exchanges that have so far reportedly been able to secure the necessary bank accounts.
Kim Hyoung-joong, chair of the Korea Society of Fintech Blockchain and a professor at Korea University, has echoed other experts' concerns and urged Korean financial authorities to draft new guidelines that will take into account the fact that banks are unwilling to issue real-name accounts to many of these firms.
As reported, alongside the current swath of new compliance requirements for crypto firms, South Korea will also implement a new crypto tax rule in the future, due to come into effect in January 2022. The law will see capital gains taxes imposed on all crypto trading profits in excess of $2,300.