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Korea to Hasten Cryptocurrency Regulation After Hack of Country’s Biggest Exchange

Last Updated March 4, 2021 5:09 PM
Joseph Young
Last Updated March 4, 2021 5:09 PM

The government of South Korea has already announced that it will regulate cryptocurrency exchanges like banks, with stricter regulations. The recent Bithumb hack will fasten the process of implementing the country’s first cryptocurrency regulatory framework.

Investors Shocked

Previously, on June 11, CCN.com reported that after months of discussion, the government of South Korea and local financial agencies including the Korea Financial Intelligence Unit (KFIU) came to a consensus to properly regulate the cryptocurrency market with a primary focus of protecting investors and preventing large-scale hacking attacks.

“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,” a KFIU spokesperson said.

As of current, somewhat absurdly, cryptocurrency exchanges are regulated as communicated vendors and with merely $30, anyone can launch a cryptocurrency trading platform in the country. Because digital asset exchanges are acknowledged as communication vendors, government agencies and financial authorities do not have direct authority over cryptocurrency exchanges, and are not permitted to strictly oversee digital asset businesses.

On June 18, CCN.com also reported that for the first time in history, local authorities admitted that the government of South Korea postponed the implementation of cryptocurrency regulations because it feared investors will consider it as a green light to invest in the market and the legitimization of the digital asset sector.

Korean crypto exchange giant Bithumb has suffered a theft of over $30 million in cryptocurrency.

According to Hani, a major mainstream media outlet in South Korea, an increasing number of government officials have started to echo a similar sentiment to Park Yong-kin, a National Assembly Committee member, who said in late 2017 that the government cannot simply leave cryptocurrency exchanges unregulated because it only worsens the cryptocurrency sector.

“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 variou issues,” said Park.

Bithumb Hack Will Fasten Regulation

Local analysts have stated that authorities were already intending to speed up the implementation of strict regulations after the CoinRail hack but the Bithumb security breach, which was unexpected by investors and the authorities, will lead regulators and lawmakers to move forward in passing the country’s first cryptocurrency bill to regulate exchanges like banks.

Once the bill is passed in the next few months, like in the US and Japan, cryptocurrency exchanges will be required to cooperate with financial authorities and establish a standard of security that must be met in order to continue operating within South Korea.

Privacy measures, security systems, and infrastructures will be drastically improved with the involvement of the KFIU and Financial Services Commission (FSC), and exchanges will no longer be permitted to operate without meeting the standard industry security requirements that are also met by leading financial institutions.

Images from Shutterstock.