South Korea announces cryptocurrency regulation
South Korea’s financial regulator has announced that it will step up monitoring of digital currencies operating within its shores, as well as carrying out probes into money laundering, unauthorised financing and other illicit transactions that such currencies might be helping to facilitate.
In preparing to regulate cryptocurrencies, South Korea is joining Japan, China and other Asian nations, according to a report published by South Korea’s Yonhap News Agency.
In a separate but related development, the South China Morning Post reported today that China had decided to ban “the practice of initial coin offerings (ICOs) – fundraising by the issue of digital currencies outside the regulatory framework – and stepped up its policing of the trading of digital coins to ward off financial risks and potential social disunity”.
Within hours of the People’s Bank of China posting its announcement, the value of bitcoin tumbled by as much as 11%, Bloomberg reported some hours later.
According to Bloomberg, which cited as its source data from Coindesk, “Bitcoin tumbled…the most since July, to US$4,326.75.
“The ethereum cryptocurrency was down more than 16% Monday.”
Recent trading volumes ‘excessive’
The Yonhap report noted that South Korea’s Financial Services Commission (FSC) had taken action after determining that the recent transaction volume and volatility of digital currencies had become “excessive”.
The moves by the South Korean and Chinese regulators to tighten up scrutiny of cryptocurrencies came as the value of a bitcoin has been surging, topping US$4,000 last month. The bitcoin is the world’s best-known crypto-currency, having been invented, according to legend, by an unknown programmer or a group of programmers who called themselves Satoshi Nakamoto.
In its report, Yonhap said that the South Korean regulator had explained its decision to step up its cryptocurrency monitoring by noting that there was a “need for the government to cope with the virtual currencies, to prevent them from being used as tools for crimes and simple speculative investment”.
In addition to being potentially useful for criminals keen to hide their currency movements, cryptocurrencies have been a growing source of concern to regulators because the exchanges that facilitate their use are largely unregulated, as they are not recognised as financial products, and because rules designed to protect those who invest in digital money don’t yet exist.
Among the new regulations the Korean FSC is planning to introduce is a requirement that banks strictly check the personal information of people who work at digital currency exchanges, according to the Yonhap report; lenders will also be required to report any illegal cryptocurrency transactions they spot to authorities.
Those “small money-transfer operators” who send money overseas using digital currency, on behalf of clients, will also be required to report such transactions to the Bank of Korea, the Yonhap report quotes the FSC as saying.
China: crypto-currencies lack legal status
In China, meanwhile, the South China Morning Post quoted the People’s Bank of China as saying that its decision to get tough with the crypto-currency fund-raising efforts reflected the fact that “the tokens or ‘virtual currency’ used in coinage financing are not issued by the monetary authorities… do not have legal and monetary properties…do not have legal status equivalent to money, and cannot and should not be circulated as a currency in the market”.
“The unregulated fundraising method widely used by digital currency firms is illegal and fraudulent. Any form of fundraising through digital currency issuance should be halted immediately,” the SCMP quoted the the central bank as adding.
“Those schemes which are already launched should repatriate funds to investors.”