The South Korean National Assembly passed new legislation on Thursday that will provide a framework for the regulation and legalisation of cryptocurrencies and crypto exchanges; potentially triggering a market consolidation in the future.
The legislation beef up South Korea’s anti-money-laundering (AML) and counter-terrorism financing (CFT) framework for virtual asset service providers (VASPs). The act requires all VASPs to register with regulators and partner with a single bank for deposits and withdrawals to make it easy for regulators to track the movement of illicit funds.
Additionally, VASPs must get their systems certified by the Korean Internet Security Agency, a costly and often lengthy process that only six companies and exchanges have so far cleared.
South Korea has been on the forefront of the cryptocurrency boom and bust over the past few years, and it’s one of the few countries with wide-scale adoption of the technology. Surveys at the height of the crypto craze in 2017 showed that more than 30% of the country’s workers were active investors in cryptocurrencies like Bitcoin and Ethereum.
South Korea’s government acted swiftly to push new regulations and clamp down on the spread of blockchain during the craze, which caused large gyrations in the price of Bitcoin as investors observed how the Korean investors would react.
Till date, only four large cryptocurrency exchanges — Upbit, Coinwon, Bithumb and Korbit — have used real-name accounts. Other players have reportedly relied on honeycomb accounts, through which they received investor money with their own corporate accounts to support customer transactions.
As the conditions and procedures for banks to issue real-name accounts to crypto exchange become stricter, small exchanges utilising honeycomb accounts will have no choice but to comply or take the exit door.
South Korea’s president has 15 days to sign the amendment into law. Some provisions will take effect one year after it’s signed, and the full law will come into effect six months after that.