The Financial Services Commission (FSC) in South Korea revised the Credit Finance Act to bar residents from using credit cards to buy cryptocurrencies. The regulator indicated this in a note on Thursday, January 4. The primary aim behind this proposed change is to restrict South Korean crypto traders from engaging in crypto purchases through international exchanges, as outlined by the FSC. Concerns voiced by the regulatory body include preventing illicit fund outflows, curbing money laundering activities, and discouraging speculative practices.
Additionally, the FSC intends to gather public input on the proposed amendment until February 13. It is slated for review and voting, aiming for implementation within H1 2024. Following a 2021 amendment to the financial reporting law, South Korean crypto users must transact using verified real-name withdrawal and deposit accounts on local exchanges. Additionally, local trading platforms now undergo stringent licensing procedures to offer fiat-to-crypto services, requiring partnerships with local banks.
The move against crypto credit card transactions aligns with a broader agenda to regulate the crypto sector and safeguard investors. In December 2023, the FSC introduced rules to shield users of crypto exchanges, mandating these platforms to store customer deposits (80% minimum) in cold wallets and compensate customers for deposit usage through fees.
Huobi Korea to Close Operations
In related news, Huobi Korea, the South Korean division of the cryptocurrency exchange, has declared its closure scheduled for January 29, 2024. The decision is due to an increasingly challenging business environment characterized by stringent regulatory pressures and consolidation within the local crypto market.
Also, the South Korean regulatory framework mandates crypto exchanges to form partnerships with local banks to offer fiat-to-crypto services, aiming to combat potential money laundering and market manipulation. However, Huobi Korea, alongside 20 other exchanges, failed to establish these partnerships. This limitation confined their operations solely to crypto-to-crypto trading, impacting revenue generation and the overall market position.
Upbit, Bithumb, Coinone, Korbit, and Gopax hold significant market dominance, collectively representing 99.6% of the total crypto trade volume. This market control has led to smaller exchanges like Cashierest and Coinbit closing their doors, while CoreDAX has halted its trading services.
Adding to the stringent regulatory environment, South Korea is gearing up to enforce the “Virtual Asset Investor Protection Act” by July 2024. The legislation will introduce further regulations, mandating exchanges to store 80% of user funds in cold wallets and acquire insurance for user compensation. The goal is to bolster compliance and safeguard investors, intensifying the pressure on exchanges to adapt to evolving regulations.
The Huobi Korea closure underscores the challenges confronting crypto exchanges in South Korea. Despite these hurdles, the exchange intends to explore new blockchain business models and services, demonstrating a commitment to adapt and thrive in adverse conditions.
South Korea Pursues Crypto Transaction Transparency
Furthering the South Korean dedication to transparency and stringent cryptocurrency oversight, the Ministry of Personnel Management has issued a directive mandating nearly 290,000 public sector employees and their immediate family members to disclose their cryptocurrency holdings beginning in February. This directive is a pivotal element of its agenda to maintain transparency and prevent potential conflicts of interest within the public sector.
This initiative gained momentum following the Coin Gate scandal, where a lawmaker faced accusations of leveraging insider information for cryptocurrency trading. The incident triggered nationwide concern, prompting a thorough investigation into the crypto assets held by public officials.
Asset disclosure among public sector employees has been routine this year, with senior officials directed to reveal their cryptocurrency holdings. Subsequently, the regulator directed its human resources to disclose their assets and prohibited them from participating in cryptocurrency trading.
Now, a new directive broadens the scope of disclosure to encompass central and local government officials, including those at level four and above in the nine-grade system. High-ranking police officers, firefighters, customs officials, land registrars, and tax officers were also affected.
Unlike traditional assets like precious metals, stocks, cash, antiques, and real estate, which demand disclosure upon exceeding specific thresholds, the regulations for cryptocurrency assets are more stringent. All cryptocurrency assets must be declared, irrespective of their value, signaling the governmental approach to regulating this contemporary asset class. The government also plans to consolidate these disclosures into a publicly accessible database, fostering transparency by allowing citizens to review public sector employee cryptocurrency holdings.
Consequently, non-compliance with these reporting requirements carries severe repercussions for public sector workers, ranging from fines to dismissal and other disciplinary actions. The directive serves as a clear message to all public sector employees: transparency regarding digital assets is not a choice but a mandatory obligation.