Analysis on the impact of passing of the Specific Financial Transaction Information Act on the virtual asset industry (Part 2)
The virtual asset industry, which was not regulated, is legislated and significant changes are expected throughout the industry. The most anticipated change is that it has established a foothold for healthy growth of the industry. As only virtual asset service providers that meet certain requirements can report to the Korea Financial Intelligence Unit (FIU) and set up their businesses, it is expected that insolvent enterprises that have founded indiscriminately will be liquidated.
However, since the Specific Financial Transaction Information Act is aimed at anti-money laundering, it is difficult to say that the government has allowed ‘entry into the formal sector’ of virtual assets through the passing of this amendment. The amendment to Specific Financial Transaction Information Act makes it possible for the FIU and banks to take full control over the existence of virtual asset service providers, which may be harmful for growth of the industry.
■The virtual asset trading market is trying to be healthy… Restructuring in the industry is expected
Kim Seong-ah, CEO of Hanbitco, chairman of the exchange committee of the Korea Blockchain Association, explained the meaning of passing of the Specific Financial Transaction Information Act, saying, “The legal status of the exchange, which was constant desire of the industry, has been established.”
Also she said, “Passing of the Specific Financial Transaction Information Act is based on the licensing system of the exchange, but in the long term, it will play a major role in the creation of the crypto financial industry dealing with crypto assets.” “In the short term, it would lead to the transparent operation of the exchange, and it would be an opportunity to build an infrastructure for the blockchain industry to develop rapidly with the inflow of new capital,” she added.
Restructuring within the industry is expected due to the entry regulation on virtual asset service providers under the Specific Financial Transaction Information Act. This is because the procedures and costs make it difficult for new companies to meet the requirements for a FIU report.
Choi Ji-hye, head of research center at Hexlant, a blockchain technology company, said, “After the enforcement of the Specific Financial Transaction Information Act, it is expected that the blockchain industry will be concentrated and enlarged in the virtual asset related industry, and the M&A between companies that provide the same type of service will increase.”
According to the amended Specific Financial Transaction Information Act, virtual asset service providers must acquire a ‘real-name verified deposit and withdrawal account’ and ‘information security management system (ISMS) certification’ to obtain a license after reporting to the FIU. These are burdensome requirements for small and medium-sized companies. Therefore, it is expected that the enlargement of the company will be inevitable, and that M&A will naturally increase. Choi said, “With the Specific Financial Transaction Information Act, many companies are standing at the critical point of management and operation.”
■Do not expect too much… The existence of virtual asset service providers may be determined by the FIU and banks
The government also said the Specific Financial Transaction Information Act was amended to meet domestic laws with international standards. An official from the Financial Services Commission (FSC) said, “The policy making authorities consider that this law was enacted to prevent money laundering of virtual assets rather than institutionalization of virtual assets.” “We need a separate discussion to institutionalize the virtual asset trading,” he added.
There is a concern that the Specific Financial Transaction Information Act can be harmful for the industry because it is a regulation law that is established without changing the government’s negative perception of virtual assets.
The biggest concern is that virtual asset service providers’ business availability is entirely determined by the FIU and the banks. The acquisition of a real-name verified deposit and withdrawal account was included as an essential requirement for acceptance of a report, and it created a system for the FIU and banks to determine the existence of virtual asset service providers.
Gu Tae-eon, a lawyer at LIN, a law firm, said, “If the FIU does not establish a ‘standard of exemption’ that virtual asset service providers can operate their businesses without obtaining a real name account, or in case of ambiguous businesses that fail to be applied the standard even if the FIU established the standard, they may not get an authoritative interpretation of exemption from the FIU.” “In this case, it is impossible to obtain a real name account from the bank, so they cannot set up their businesses,” he added. Also, he said, “Passing of the Specific Financial Transaction Information Act has introduced a pre-censorship system in which the government determines the existence of a specific business.”
Lim Yoo-kyung(2020.03.10) 특금법, 가상자산 산업에 약일까 독일까
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