South Korean authorities have admitted that the lack of cryptocurrency regulation coming from the regulatory authorities is due to their fear of legitimizing the cryptocurrency markets. They fear that consumers would view the regulation as a green light for investing, which could lead to financial loss in the volatile markets.
Korea’s governments confusing relationship with cryptocurrency regulation began in January, when the former Finance Minister claimed that regulation was being drafted to ban all cryptocurrency trading from the country. This news contributed to market decline but was later found to be completely false.
Last week, reports surfaced that the Korea Financial Intelligence Unit (KFIU) is set to regulate the cryptocurrency markets soon. This set of regulations will mainly affect exchanges, applying rules to them similar to the rules banks must adhere to.
On June 8th, the KFIU director confirmed that the government has agreed to regulate the cryptocurrency market to prevent criminal activities like money laundering and exchange hackings.
A KFIU spokesperson discussed the revelations, saying:
“Under current regulations, there are clear limitations in preventing money laundering on crypto exchanges because the only way authorities can spot suspicious transactions is through banks. If the bill of lawmaker Jae Yoon-kyung from the Democratic Party of Korea passes, local authorities will be able to impose identical regulations on crypto exchanges that are implemented on commercial banks.”
Some Korean officials have been urging the government to implement regulation since September of last year.
Park Yong-jin, a member of the National Assembly Committee, told various news outlets in September that the government must implement regulation in order to prevent scams and exchange hacks, like the Coinrail hack that occurred earlier this month.
“We are frustrated as well. We fully understand that the government is reluctant towards regulating the cryptocurrency market because it will inevitably lead investors to consider it as the government’s way of legitimizing the market. But, if the government leaves the cryptocurrency market unregulated, it is simply leaving it vulnerable to various issues.”
Many assume that the recent hack of the South Korean cryptocurrency exchange Coinrail triggered the regulatory moves from the government. Investigations that occurred following the hack showed that the exchange started with a development budget of $10,000. This means that the company’s initial development and early operations likely lacked many security features.
The new regulations being implemented by the government may lead many investors in South Korea to view the markets as legitimate, leading to greater trading activity.