As concerns over illegal capital outflows and money laundering deepen, the Financial Services Commission (FSC) of South Korea today proposed amendments to the Credit Financial Business Act to prohibit Korean citizens from purchasing cryptocurrencies with credit cards. The aim of this move is to restrict Korean cryptocurrency investors from buying cryptocurrencies on foreign exchanges.
Background:
In January, the Korean Financial Supervisory Service visited Gary Gensler, Chairman of the SEC, to discuss a cross-border framework for cryptocurrencies.
The FSC of South Korea today proposed amendments to the Credit Financial Business Act to effectively prohibit Korean citizens from using credit cards to purchase cryptocurrencies. The legislative notice stated that the reason for proposing these amendments is related to concerns regarding illegal capital outflows, money laundering, and speculative activities within the country.
Collaboration with Visa and Mastercard to prevent money laundering:
According to the legislative notice, organizations, groups, or individuals with opinions on these amendments can submit feedback to the FSC of South Korea before February 13. The FSC of South Korea will review and vote on the amendments, with the goal of implementing them in the first half of 2024.
According to the 2021 amendment to the Financial Reporting Act, Korean cryptocurrency users must conduct transactions using withdrawal and deposit accounts provided by local exchanges and verify their identities through real-name authentication. This amendment also requires local exchange platform operators to obtain strict licensing preparations in order to provide services for fiat-cryptocurrency deposits, including establishing partnerships with local banks.
The FSC of South Korea stated that in the future, Korean authorities will establish cooperative foundations with international payment companies such as Visa and Mastercard to strengthen measures against foreign exchange outflows and money laundering.
Strengthening cryptocurrency regulation in South Korea:
South Korea’s enthusiasm for cryptocurrency trading is well known in the cryptocurrency market. According to a report published by the Korean National Tax Service in September of last year, the total amount of foreign financial assets declared by Koreans reached 186.4 trillion Korean won, of which cryptocurrency assets accounted for 130.8 trillion Korean won, representing approximately 70% of the total.
In order to improve the protection of cryptocurrency investors, South Korea has been actively regulating the cryptocurrency market in recent months. In July of last year, the Korean National Assembly passed the Virtual Assets User Protection Act, which integrated 19 related cryptocurrency asset laws, defined digital assets, and established penalties for illegal activities such as insider trading, market manipulation, and unfair trading.
This law is expected to officially take effect in July 2024, but the current legislation only applies to non-securities-based virtual assets, and there is still insufficient specific planning on whether virtual assets are classified as securities and how they should be managed and regulated.
Further reading:
The Virtual Assets User Protection Act and other laws will take effect in July next year, completing full regulation.
In November of last year, the Financial Supervisory Service of South Korea announced the establishment of the “Virtual Asset Supervision Bureau” and the “Virtual Asset Investigation Bureau.” The Virtual Asset Supervision Bureau will be responsible for overseeing the virtual asset field, including regulating virtual asset business operators, conducting supervisory inspections, market monitoring, and improving systems. The Virtual Asset Investigation Bureau is a department dedicated to investigating improper transactions and focusing on combating market disruption to prevent market disorder and protect users.
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