South Korea is taking a major step in legitimizing cryptocurrency exchanges by drafting standards that will eventually classify such exchanges as regulated financial institutions. The coverage area for the standards is broad and includes multiple elements of the cryptocurrency and blockchain ecosystem. The government is soliciting inputs from a wide variety of stakeholders. According to reports, the list consists of 43 government ministries, 17 regional municipalities and 160 institutions. The country’s Ministry of Science and Technology, the Ministry of Information and Communication are working together to draft the operational standards and regulation pertaining to the initiative.
Cryptocurrency exchanges will be classified as “Cryptocurrency Exchanges and Brokerages” in the new system. (Earlier they were classified as Communication Vendors). While details for the system are not available, they are sure to include strict requirements for identifying customers and implementing security measures.
Earlier this year, Financial Supervisory Services (FSS) and Financial Services Commission (FSC), the government agencies responsible for implementing and formulating regulation standards, conducted a comprehensive examination of six cryptocurrency exchanges in January to provide guidance for their functioning. They issued an Anti-Money Laundering (AML) guideline after the investigation.
Kim Yong-Beom, Vice Chairman of the FSC, recently told reporters that blockchain technology had the “potential to shake up today’s regulations on securities”. “…an international discussion and cooperation among regulators to come up with policies on crypto-assets is necessary,” he said.
The Importance Of Being South Korea
South Korea is among the top three markets for crypto trading. Prices for cryptocurrencies trade at a premium as compared to other markets in South Korea. According to an April estimate, crypto trading in the country amounted to $476 million on a daily basis. In some cases, the market price of currencies is dependent on trading volumes in South Korea. For example, Ripple’s price crashed after Coinmarketcap, a site that aggregates prices from crypto exchanges, excluded overheated South Korean exchanges from its calculations. Besides this, the country is also an early mover in using blockchain in its financial services ecosystem. A consortium of South Korean banks conducted pilot tests for money transfer using Ripple’s technology back in April. A regulated cryptocurrency ecosystem may increase the costs of crypto trading but it will ensure a stability and establish a framework for future growth.