South Korea officially passes amendments to the special financial law! Cryptocurrency Institutionalization Goes Next

Source: Shallot Blockchain

Yesterday, the news that the Supreme Court of India overturned the Indian central bank's crypto ban caused some bitterness in the crypto community.

And this afternoon, the entire parliament of the South Korean Parliament also officially passed the " Report and Utilization of Information on Certain Financial Transactions" (hereinafter referred to as "Special Financial Law") amendment. This means that the amendment will be implemented one year later (ie March 2021). Relevant companies must report to the financial sector within six months from the date of implementation.

The amendment treats domestic Korean cryptocurrency exchanges as "financial companies" and includes regulations on anti-money laundering and cryptocurrency financing.

In addition, the Financial Information Analysis Institute (FIU) of the Korean Financial Commission will develop a series of measures such as subordinate regulations to smoothly implement the amendment. Relevant departments will also actively collect opinions from the crypto industry and private experts.

What does the Special Financial Law Amendment include?

The amendment complies with some of the implementation standards recommended by the Anti-Money Laundering Financial Action Task Force (FATF). The specific contents of the bill are as follows:

1. Define cryptocurrency-related companies as "virtual asset managers (VASP)".

2. Digital asset operators must comply with the operator's business, such as reporting to the Financial Information Analysis Institute (FIU) of the Korean Financial Commission, anti-money laundering obligations (customer confirmation and suspicious transaction reports, etc.) and additional obligations. Specifically, undeclared operating companies will be punished with imprisonment of less than 5 years and a fine of less than 50 million won. This actually means that the government will directly manage the cryptocurrency market within the scope of the law.

3. Financial companies dealing with digital asset operators must comply with the following obligations: check the representative of the operator and the purpose of the transaction, check whether the operator submits a declaration, and whether the funds are managed separately.

In fact, before that, the Korean Financial Services Commission expressed its willingness to manage the virtual asset trading market by reviewing the scope of business of virtual asset operators, the operating methods of the reporting system, and the operating conditions of real-name accounts. Exchanges that do not meet the standards set by regulators are more likely to be forced out of the market.

How does the crypto community react?

The crypto community has generally welcomed the institutionalization of cryptocurrencies. Previously, most domestic cryptocurrency exchanges had called for the rapid adoption of amendments to the Korean Special Financial Law.

A South Korean exchange official said that some illegal companies caused direct and indirect damage to exchanges that comply with industry rules and negatively affected the industry. The crypto industry urgently needs to be regulated.

Some practitioners also emphasized that because some major countries in the world have established regulations related to cryptocurrencies, South Korea urgently needs to keep pace and ensure global competitiveness.

However, a Korean legal person pointed out that after the passage of the special financial law amendment, only large exchanges with capital strength such as Bithumb and Upbit can survive, while other small and medium-sized trading sites will have to withdraw from the market. In addition, special financial law amendments that include real-name accounts and other content, including real-name account authentication, can be a fatal blow to the crypto industry.

The industry expects that discussions on the tax classification of cryptocurrencies will be more active as a result of the taxation of Bithumb by the Korean Internal Revenue Service to "over 80 billion won in taxes (including local taxes) involving foreign customers."

On the other hand, the Korea Financial Services Commission is expected to actively develop guidelines for cryptocurrency trading businesses based on amendments to the special financial law.

Institutionalization of Korean cryptocurrency

Scallion organized the institutionalization process of Korean cryptocurrency according to the timeline.

In November 2016, a working group on digital currencies was established.

In December 2016, Shinhan Bank opened a China-Korea Bitcoin remittance channel.

In June 2017, the South Korean government held a Bitcoin auction.

In July 2017, representatives of the Democratic Party of Korea drafted a bill to regulate and legalize cryptocurrency amendments.

Effective July 18, 2017, the revised version of the Korean Foreign Exchange Trading Act allows fintech companies to register with the Financial Supervisory Service (FSS) and "provide international currency transfer services for small amounts of money", including Bitcoin.

In early September 2017, the Ministry of Science and Technology and the Communications Commission of Korea announced that they would conduct on-site inspections of cryptocurrency service providers such as Bitcoin exchanges.

In September 2017, South Korea planned to punish ICO projects.

At the end of September 2017, the Korean Financial Services Commission (FSC) stated that it would ban all forms of token financing (ICO).

In October 2017, the governor of the Bank of Korea stated that Bitcoin is a commodity, not a currency.

In December 2017, South Korea banned financial institutions from participating in cryptocurrency activities.

In December 2017, the South Korean government cracked down on fraudulent exchanges.

In December 2017, the South Korean government announced that it would take more measures to regulate cryptocurrencies, including real-name systems for cryptocurrency transactions, prohibiting anonymous opening of cryptocurrency accounts, and closing virtual currency exchanges.

On December 24, 2017, the Korean Government Policy Coordination Office will prohibit the use of anonymous accounts for cryptocurrency transactions and prohibit banks from providing settlement services for unidentified cryptocurrency transactions. The new legislation will be implemented in January 2018.

In January 2018, traders without real-name authentication will face fines.

In January 2018, the South Korean Ministry of Defense banned the military from trading cryptocurrencies.

In January 2018, 25 exchanges in South Korea participated in the cryptocurrency self-regulation initiative.

On January 21, 2018, South Korea intends to require banks to have all virtual currency transaction information.

On January 22, 2018, Yonhap News Agency: South Korea will levy 24.2% of corporate and local income taxes on the Korean virtual currency exchange, which will be implemented in 2018.

On January 30, 2018, South Korea began to implement a real-name system for virtual currency transactions. Shinhan Bank, Nonghyup Bank, Corporate Bank, Kookmin Bank, Hana Bank, Gwangju Bank, and other six banks that open transactions with virtual currency exchanges have real-name confirmations.

On January 31, 2018, the Korean Customs and Excise Department: It will begin to focus on cracking down on unregistered foreign exchange business using virtual currencies.

On February 1, 2018, South Korean Finance Minister Kim Dong-Soo said that the government is always concerned about the use of digital cryptocurrencies for illegal overseas transactions and will regulate digital currency transactions.

On March 23, 2018, the Korean Financial Services Commission (FSC) is considering lifting the ICO ban.

From April 19th to 25th, 2018, the Financial Information Analysis Institute (FIU) of the Korea Financial Services Agency and the Financial Supervision Institute will work with three banks (NH Bank, KB Bank, KEB Bank) that provide virtual accounts to digital currency exchanges. Perform on-site inspections. The content of its inspection is compliance with the "Guidelines on Preventing Money Laundering Related to Digital Currency".

April 30, 2018, Bank of Korea: The South Korean financial sector is preparing digital currency taxation standards.

On May 6, 2018, the head of the Korea New Financial Supervisory Authority confirmed that the supervision of digital currency transactions will be relaxed.

In May 2018, the Korean National Assembly proposed allowing domestic ICOs.

On July 20, 2018, the tax of the virtual currency exchange was not included in the tax reduction plan of the 2018 amendment to the Korean tax law

On August 1, 2018, the Korean Parliament: It is necessary to review the issue of local taxes on virtual currencies, etc.

On August 14, 2018, the South Korean government announced the removal of digital currency related businesses and blockchain projects from the tax cut bill.

On October 14, 2018, Choi Jong-ku, chairman of the Korean Financial Services Commission (FSC), reiterated his negative position on virtual currencies and ICOs at the meeting.

On October 24, 2018, the Korean Financial Supervisory Service (FSS) and the Korean Financial Services Commission (FSC) issued a statement stating that digital currency funds are not legal fund products, have not been filed with the Financial Supervision Service, and violated the The Law on Capital Markets and the Financial Investment Industry (hereinafter referred to as the "Capital Market Law") reminds investors to pay attention to risks.

At the end of November 2018, the Korean government listed virtual currency as one of the nine major money laundering risk factors.

On December 2, 2018, South Korea's new Minister of Finance Hong Nam-Kee revealed that South Korea intends to levy taxes on cryptocurrencies and ICOs.

In January 2019, the Korea Financial Supervisory Authority (FSS) released the results of its investigation into ICOs. FSS conducted 24 domestic ICO projects (including 2 ICO projects in the middle of the three months from September to November 2018). (Discontinued). The South Korean government believes that in order to protect investors and prevent speculative phenomena from happening again, the ICO ban should continue.

On March 28, 2019, Korean Democratic lawmakers filed an amendment proposing punishment for unauthorized cryptocurrency exchanges.

On May 28, 2019, the South Korean government: It is closely monitoring the trend of the virtual currency market and advises investors to invest in virtual currency carefully.

At the end of September 2019, the President of South Korea is directly under the chairman of the Fourth Industrial Revolution Committee: he will propose to the government to institutionalize crypto assets.

On October 25, 2019, the Fourth Industrial Revolution Commission of South Korea urged the government to institutionalize cryptocurrencies and formulate related tax plans as soon as possible.

On November 21, 2019, the Legal Review Subcommittee of the Korean Parliament's Administrative Committee passed an amendment to the special financial law.

On November 25, 2019, the amendment to the Special Financial Law on Virtual Assets in South Korea was approved by the Administrative Commission and is subject to approval by the Judiciary Committee and the Plenary of Congress.

Shareholders of Bithumb Holdings, the operator of Bithumb Korea, said on December 27, 2019 that the State Administration of Taxation has imposed a total of more than 80 billion won (including local taxes) on Bithumb Korea's withholding taxes on foreign customers.

On December 30, 2019, the Ministry of Planning and Finance of the Republic of Korea: The tax items in the current tax law do not include cryptocurrencies, but it is intended to tax them by amending the tax law.

In January 2020, the Korea Presidency Committee recommended that financial institutions be allowed to launch cryptocurrency-related products such as Bitcoin derivatives.

In mid-January 2020, Bithumb has filed a lawsuit with the tax court, accusing the South Korean Internal Revenue Service of "unfounded" taxation.

On January 20, 2020, a person familiar with the matter: The South Korean Ministry of Finance is considering a 20% tax on cryptocurrency trading income.

On February 20, 2020, Upbit official: Due to the inability to independently determine the tax standards and tax rates, it is temporarily unable to resume the withdrawal service for foreign users

On March 4, 2020, the South Korean Parliament ’s Rule of Law and Judicial Committee passed an amendment to the “Reporting and Utilization of Information on Certain Financial Transactions (Special Financial Law)”. Only voting procedures remain in the plenary of Congress.

On March 5, 2020, the entire parliament of the South Korean Parliament formally passed the amendment to the special financial law .

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