As of July 2018, the South Korean government officially recognized crypto exchanges as regulated banks and financial institutions.
This comes as no surprise since South Korean regulators have been making huge leaps forward for the last year.
Here are some of South Korea’s headline moves:
1. Forbidding Government Officials from Crypto-trading
In March 2018, South Korea banned its government officials from holding and trading cryptocurrency. South Korean officials claim that these rules prevent insider cryptocurrency trading and price manipulation. As part of these regulations, minors under the age of 20 are forbidden from crypto investing.
In January 2018, South Korean officials from the Financial Supervisory Service (FSS) admitted to insider cryptocurrency trading.
2. Tax Laws for Crypto Exchanges
In January 2018, the South Korean government announced that tax percentages for cryptocurrency exchanges will be in line with the tax code for all corporations (i.e. 22% corporate tax plus a 2.2% local income tax).
South Korean exchange Bithumb made 317.6 billion won ($295,368,000) last year in total, so is expected to pay about 60 million won in taxes according to new tax provisions.
3. KYC Rules
In late 2017, Korean regulators introduced a set of KYC rules to increase accountability and transparency across the entire market. As more regulations are put into place, existing crypto exchanges will be required to overhaul their internal management systems and drastically enhance security measures to remain in compliance with new policies.
4. Require Real-Name Transactions
In December 2017, the South Korean government banned the use of anonymous virtual accounts in cryptocurrency transactions. Under this legislation, only real-name bank accounts and matching accounts within virtual currency exchanges can be used for deposits and withdrawals. This is part of the government’s agenda of preventing money-laundering in the cryptocurrency sphere.
The top six major South Korean banks showed a 36 times increase in commissions from virtual accounts linked to crypto exchanges, reaching 2.2 billion won ($2 million) in 2017.
5. Legalizing Bitcoin Remittance
In July 2017, the government legalized Bitcoin as a remittance method, allowing fintech companies to process up to $20,000 worth of South Korean won in Bitcoin for users. Under the bill, fintech companies had to receive approval from the country’s top financial regulator, the Financial Services Commission (FSC). These business entities are required to retain at least $436,000 in capital and have sufficient data processing facilities for Know Your Customer (KYC) and Anti-Money Laundering (AML) purposes in order to receive FSC approval.
How This New Framework Will Affect Cryptocurrency Markets
In the short-term, the newly created regulatory framework for cryptocurrency exchanges may have a negative impact on both the trading platforms and investors, because it would mean stricter Know Your Customer (KYC), Anti-Money Laundering (AML), and customer verification policies. And since Korea is one of the largest crypto markets in the world, the entire market for cryptocurrency market will feel the effects.
In the long-term, however, this move legitimizes the cryptocurrency sector and positions Korea as the hub for crypto-related businesses and services. Large-scale institutional investors and retail traders will enter the crypto market, allowing digital assets to be considered a major emerging asset class.
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