Thanks to China’s increasingly cold stance on cryptocurrency trading, South Korea has emerged in recent years as a hub for digital currency investment and innovation. The country is already home to dozens of major startups in the crypto space, many of which have aims to expand into other southeast Asian markets. The current boom in cryptocurrency startups and investments may become more of a quiet pop, however, if South Korean regulators get their way. Financial authorities in the country recently announced a series of seemingly conflicting regulations for the industry, sending decidedly mixed messages to would-be investors and entrepreneurs.
First, the good news. Earlier this week, South Korea’s Financial Services Commission (FSC) announced plans to lift the current ban on ICOs in the county, reversing a decision made in September that made ICOs illegal. At a public hearing at the National Assembly, FSC vice-chairman Kim Yong-beom explained that regulators would instead seek to introduce a new legal framework for cryptocurrencies and related innovations. Kim also noted that ICO investments may be limited to “professional investors,” and “not regular citizens who are not informed of its technology and complicity.” This would put cryptocurrency investment in a similar category to other high-risk ventures, a position even U.S. regulators have been reluctant to consider, as there is concern it might stifle innovation in the sector.
At the same time, reports have surfaced that South Korean regulators are “considering” a ban on all cryptocurrency exchanges in the country, echoing China’s recent crackdown. Although the rumor isn’t exactly good news for the South Korean cryptocurrency community, there is reason to believe that the “ban” might actually be more of a “pause.” If South Korea is planning to introduce a comprehensive regulatory framework for cryptocurrency investment, exchanges would almost certainly need to meet high bars for security, anti-money laundering and anti-terrorism compliance. It’s not hard to see why the government would want to shutter existing exchanges, then require them to go through an approval process to ensure compliance.
In January, Korean regulators also plan to enforce a new, “voluntary” regulation on crytocurrency traders that would require all digital token sales and trades to take place through one “verified, real-name virtual account per exchange.” It remains unclear how these plans would be effected by the rumored ban, or if South Korean exchanges will even comply with the voluntary regulation at all, opting instead to relocate to other southeast Asian markets.
Lastly, on Tuesday the FSC issued a new ban on bitcoin futures trading. The decision came as something of a surprise to South Korean futures firms, as plans to issue and trade bitcoin securities in late December had been in the works for months and were well known to regulators. The FSC announced the ban through the Korea Financial Investment Association on Dec. 5., mere days ahead of the launch of U.S.-based bitcoin futures trading at Chicago Board Options Exchange.
We’ll update the story as the situation in South Korea develops.