South Korea has taken another step towards regulating its cryptocurrency industry, passing a first-phase review of proposed legislation that would give the country’s Financial Services Commission the authority to investigate and supervise financial activity related to “digital assets,” including cryptocurrency.
The proposed bill comes with numerous regulations governing the sale, storage and trading of cryptocurrencies, with a particular emphasis on consumer protection and compliance reporting. If passed, it would become one of the most sweeping pieces of national cryptocurrency legislation in existence.
One of the key requirements under the proposed legislation is for exchanges and similar service providers to separate internal holdings from user assets, carry insurance, and maintain reserves in the event of non-market-related losses. The only exceptions are central bank digital currencies and assets tied directly to the Bank of Korea.
Businesses and individuals participating in the cryptocurrency economy in South Korea will also be required to self-report irregularities to maintain compliance. The commission has included recommendations for punishments that would impose relatively stiff penalties, including fines of three to five times the total losses and up to a year in prison for those convicted of infractions resulting in losses less than approximately $3.75 million.
Crimes resulting in losses over the $3.75 million mark noted in the legislation would be punishable with sentences ranging from five years to life in prison. These penalties are significantly more severe than those imposed on the CEO of Titanium Blockchain, who was recently convicted in the United States for defrauding consumers for $21 million and received a sentence of four years and three months.
South Korean legislator Hwang Suk-jin, a member of the ruling People Power Party’s Digital Asset Special Committee, told media outlet Forkast that “both the ruling and opposition parties have agreed on the matter,” before suggesting the legislation would become law by the end of the year.
The proposed legislation was announced in June 2022, just a month after the collapse of the Terra ecosystem triggered massive declines in the cryptocurrency sector. Terraform Labs co-founder Shin Hyun-seong and nine others were subsequently indicted by the South Korean government.
The proposed regulations are intended to address the risks associated with cryptocurrency trading, which include price volatility, hacking, and other forms of fraud. They also seek to ensure that cryptocurrencies are used in a way that is consistent with South Korean law.
South Korea is home to one of the world’s largest cryptocurrency markets, with a significant percentage of the population involved in cryptocurrency trading. However, the country has been grappling with how to regulate the sector in a way that protects consumers while still encouraging innovation and investment.
While the proposed legislation has been praised by some for its strict enforcement measures, others have expressed concerns that it could stifle innovation and drive cryptocurrency companies out of South Korea. However, the country has emphasized that it is committed to striking a balance between protecting consumers and promoting innovation.
The passing of the first-phase review of the proposed legislation represents a significant milestone in South Korea’s efforts to regulate its cryptocurrency industry. However, it remains to be seen whether the bill will be passed into law and how it will be enforced once it is.
