The South Korean Financial Services Commission (FSC) has established a task force to design regulatory framework for Bitcoin companies and users. The government states that regulations will be introduced by the first quarter of 2017.
Several meetings have taken place since the FSC’s initial announcement of a potential introduction of Bitcoin regulation. South Korean media reported that the task force agreed to design its regulatory frameworks for Bitcoin companies based on the regulations in Japan and the U.S.
While regulations greatly vary between states in the U.S., Japan has a unified regulatory framework in which Bitcoin startups are required to obtain licenses to operate. That means, by early 2017, South Korean Bitcoin startups and exchanges, including Tim Draper-backed Coinplug and Softbank-invested Korbit, will have to deal with a BitLicense-like regulatory environment.
Effect on startups
Based on the FSC’s stance on Bitcoin and its concerns for illicit purchases and use cases surrounding digital currencies, it is highly likely that KYC/AML policies will be strengthened for Bitcoin companies.
Bitcoin exchanges will be subjected to particularly strict KYC/AML policies, as the task force, FSC and law enforcement will require exchanges to submit an extensive overview of users and their trading histories.
It is also likely that South Korea may see a Coinbase-IRS conflict with its existing Bitcoin exchanges, as the commission believes Bitcoin and other digital currencies are used for tax-related crimes. In this case, exchanges will be required to hand over personal data and financial information of their users to law enforcement, which will then be shared with the National Tax Service.
The commission stated:
“Digital currency is often used for money laundering, drug trafficking and tax-related crimes since it is free from regulation.”
Although South Korean Bitcoin exchanges currently have extensive KYC/AML verification phases, with the new regulatory frameworks and licensing system in place, it could become increasing difficult in 2017 for Korean traders to purchase and sell Bitcoin without providing personal and financial information.