South Korean lawmakers voted Thursday to place tough new requirements on cryptocurrency exchanges, adding legitimacy to the country’s sprawling crypto economy – and potentially triggering a market consolidation down the road.
As reported by CoinDesk Korea, the legislation – an amendment to Korea’s existing Financial Information Act – shores up South Korea’s anti-money-laundering (AML) and counter-terrorism financing (CFT) framework for virtual asset service providers (VASPs).
The act requires all VASPs to register with regulators and partner with a single bank for deposits and withdrawals. This linkage of virtual wallets and real-world bank accounts – both of which must be registered to a user’s actual name – will make it easy for regulators to track the movement of illicit funds.
Additionally, VASPs must get their systems certified by the Korean Internet Security Agency, a costly and often lengthy process that only six companies and exchanges have so far cleared.
That could squeeze out Korea’s smaller players who cannot afford to take on the regulatory burden, CoinDesk Korea reports. Exchanges may attempt to consolidate, raising funds and banding together to meet the new requirements.
But it could also be a death knell for gray-area projects trying to take advantage of investors, particularly initial coin offerings (ICO), which must follow the registration requirements under the new law.
“If this passes in Korea, blockchain companies and cryptocurrency will officially be regulated but accepted in Korea. Bad news for scammy ICOs and exchanges. Good news for blockchain professionals in Korea,” tweeted Doo Wan Nam, who works with MakerDAO.
The legislation is the latest example of a country working to comply with new global AML and CFT directives in the virtual asset space. Ever since the Financial Action Task Force (FATF) issued guidelines for policing VASPs, regulators have been racing to clamp down on potential illicit activity in their jurisdiction.
South Korea’s president has 15 days to sign the amendment into law. Some provisions will take effect one year after it's signed, and the full law will come into effect six months after that.