In a big step towards regulating cryptocurrencies, the Korea Financial Intelligence Unit (KoFIU) conducted a joint inspection of six Korean banks that serviced cryptocurrency account exchanges earlier this year in January. The purpose of the inspection was to collect more information and to provide further guidance for services regarding cryptocurrencies in the future and concentrated on the banks’ approach to anti-money laundering (AML) and customer due diligence in regards to cryptocurrency.
After the inspection was completed, the Financial Services Commission (FSC) stated that while there will be no charges filed against the six banks, the Korean authorities are currently discussing future measures for cryptocurrency crimes including the possibility of forcing exchanges to shut down. Based on the data from the inspection, the FSC also introduced the Anti-Money Laundering Guideline Related to Cryptocurrency (AML Guideline) on January 23, 2018. With the AML Guideline in effect, banks are now required to conduct and strengthen due diligence which are not limited to on-site inspections, on high risk customers and those involved with cryptocurrency.
In the event of a cryptocurrency investment, the bank must confirm the identity of the customer and whether or not they have an actual account at the bank. Section 2 of the AML Guideline targets specific customers and requires banks to conduct strict customer due diligence on “casino owners, money lenders or currency exchange agencies.” Section 2 also states that all users who use cryptocurrency are required to open a bank account linked to the currency and to provide accurate beneficial ownership information. Definitive thresholds and suspicious activities are discussed in Section 3, which states that all suspicious activities must be reported to the KoFIU such as customer transactions of KRW 10 million a day, or a total of KRW 20 million within seven days. On the same day the AML Guideline was introduced, the FSC also announced the Special Measures for the Elimination of Virtual Currency Speculation (Special Measures) which has the purpose of removing all anonymous trading accounts.
The US has also taken steps to regulate cryptocurrency with the introduction of the Guidance on Prevention of Market Manipulation and Other Wrongful Activity (NYDFS Guidance) by the New York State Department of Financial Services (NYDFS). Companies are now required to utilize measures in order to effectively identify, prevent, and respond to crimes as well as submitting written reports on any mishaps and follow ups to any events that have been previously reported. The NYDFS has also asked the KoFUI and the FSC to share the results of the inspection, with a Korean official stating, “[t]here’s a lot of concern from foreign governments about the regulations being imposed on the cryptocurrency trade….With the Korean government conducting on-site inspections and establishing guidelines, financial regulators in New York seem to be gathering information for research purposes.”
South Korea plays a major role in the cryptocurrency market, with bitcoin and ethereum being priced higher on Korean exchanges due to their standing as the world’s third largest cryptocurrency market. CNBC reported that on a local Korean exchange, Bithumb, bitcoin was priced 31% higher than the average CoinDesk price. As a result, creating new guidelines to regulate cryptocurrencies is an important message for the rest of the world to follow suit alongside the AML Guideline, the Special Measures, and the NYDFS Guidance.
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