General

According to Huacheng Import and Export Data Observation Report, the world's third largest cryptocurrency exchange FTX recently went bankrupt due to its self-issued token called FTT, which has aroused great concern from all walks of life in South Korea. The Financial Information Analysis Institute under the Financial Services Commission of South Korea has recently conducted a comprehensive investigation into the current status of cryptocurrency issuance by all cryptocurrency exchanges in South Korea.

Analysts pointed out that South Korea's current "Specific Financial Information Act Enforcement Order" stipulates that cryptocurrency exchanges and related personnel cannot play an intermediary and mediation role in the process of buying, selling and exchanging virtual assets issued by themselves or those who have a special relationship with them. Therefore, this time, relevant South Korean agencies will also inspect all cryptocurrency exchanges in South Korea for violations of the Enforcement Order of the Specified Financial Information Act. In the future, with the promulgation of the "Digital Assets Act", South Korea will severely punish fraud and illegal transactions involving encrypted assets and reduce the risk of cryptocurrency investment.

Cryptocurrency Exchange Bankruptcy

Due to the relevant regulatory provisions in the Enforcement Order of the Specific Financial Information Act, the Korean financial sector has always believed that South Korea will not have financial problems due to the self-issued tokens of cryptocurrency exchanges. However, as the well-known cryptocurrency exchange FTX went bankrupt due to the self-issued token FTT, some people in the Korean cryptocurrency circle doubted that the cryptocurrency listed by the Korean cryptocurrency exchange "Flata EXCHANGE (Flata EX)" in January 2020 " FLAT" is its self-issued token, reported by Watson & Band Import and Export Data Observation.

Therefore, in mid-November, the Institute of Financial Information Analysis targeted all cryptocurrency exchanges in South Korea to investigate the current status of cryptocurrency issuance by the latter. The Financial Information Analysis Institute confirmed that none of the top five cryptocurrency exchanges in Korea, including Flata EX, issued their own tokens.

In addition, the South Korean financial department is also checking the situation of FTT tokens held by domestic cryptocurrency exchanges in South Korea. The total amount of FTT owned by Korean domestic exchanges is about 2 billion won (1 won is about 0.005 yuan). Cryptocurrency exchanges such as GOPAX, Coinone, and Korbit that list FTT tokens have decided to cancel FTT listing qualifications from 18:00 on November 26.

The "Digital Assets Law" will be launched soon

After South Korean President Yoon Seok-yue took office, he repeatedly promised to rectify and eliminate unstable factors in the cryptocurrency market. Affected by the bankruptcy of the cryptocurrency exchange FTX this time, the South Korean financial regulator once again emphasized the necessity of formulating regulatory measures in the National Assembly.

According to Watson & Band Import and Export Data Observation, the South Korean government is currently drafting the Digital Assets Act. The bill is composed of 13 encryption legislative proposals currently submitted to the Korean National Assembly. It will severely punish fraud and illegal transactions involving encrypted assets and reduce the risk of cryptocurrency investment. It is expected to be introduced next year.

On November 22, the Bithumb Economic Research Institute under the Korean virtual asset exchange "Bithumb" released a report titled "Looking at the Status Quo of Korean Virtual Asset Exchanges and Domestic and Foreign Regulatory Trends from the FTX Crisis". The report believes that with the introduction of the "Digital Assets Act" in the future, South Korea will implement more detailed investor protection measures. Especially in recent years, with the losses caused to investors by virtual currencies such as FTT tokens, not only South Korea, but also more targeted laws and regulations to protect virtual asset investors around the world will be introduced one after another.

The report also lists the content related to virtual asset transactions in South Korea's current laws. According to the current laws of South Korea, the virtual asset exchange implements the dual supervision system of the Korean Financial Intelligence Service and the bank for user deposits. The Enforcement Order of the Specific Financial Information Act imposes on all virtual asset operators the obligation to manage deposits and proprietary properties separately, and is subject to continuous inspection and regulation by banks. In addition, according to the "Enforcement Order of the Specific Financial Information Act", virtual currency operators or special related parties of practitioners are restricted from intermediary and mediation activities such as the sale and exchange of issued virtual assets. In view of the risk of misappropriation of virtual assets deposited by customers on the exchange, the report explained that domestic virtual asset exchanges in South Korea are improving the transparency of exchange operations through regular external audits and publishing regular investigation reports.

At the same time, South Korea's current "Special Financial Transactions Act" also prohibits venture capital investment secured by virtual assets issued by the exchange itself, Watson & Band Import and Export Data Observation reported.

Local governments tightened relevant policies

In view of the serious impact of the recent FTX bankruptcy incident, South Korean local governments have tightened policies related to cryptocurrencies and digital assets.

The city of Busan recently decided to reconsider whether to establish a digital asset exchange. Since August last year, the city of Busan has signed business agreements with several digital currency trading platforms such as Huobi Global. The establishment of a public-private partnership digital asset exchange in Busan is also the promise of Busan’s current mayor, Park Hyung-joon. However, an official of Busan City said on November 23 that in view of the current situation, Busan City has postponed the establishment of an exchange.

Some voices believe that South Korea's cryptocurrency-related policies and legislation are currently unable to keep up with the rapidly changing economic and social conditions at home and abroad. The cryptocurrency market has become a "black hole" for money, and a crisis related to this may be imminent. It has also raised concerns about illegal financial practices such as money laundering.

According to Watson & Band Import and Export Data Observation Report, as people’s concerns about cryptocurrencies are getting louder, the South Korean government and legislatures should regulate and severely punish illegal activities related to cryptocurrencies, and cannot allow cryptocurrency transactions to become a blind spot for legal supervision .