The heads of two powerful financial regulators, Gary Gensler of the United States Securities and Exchange Commission (SEC) and Lee Bok-hyun of South Korea’s Financial Supervisory Service (FSS), plan to meet next month to discuss oversight of the volatile virtual asset market, according to South Korean news outlet Chosunbiz .
Lee intends to visit the SEC in mid-January to share perspectives on cryptocurrency regulation and align policy approaches to police the borderless industry.
The sit-down comes as South Korea prepares to implement new legislation. The Virtual Asset Act imposes stricter rules around digital coin offerings and trading. Slated to take effect in July 2024, these protections aim to curb fraud and illicit behavior. However, the FSS lacks experience building an oversight framework around crypto finance. This is an area where the SEC under Gensler has aggressively asserted jurisdiction.
A former Wall Street banker well-versed in the intricacies of derivatives trading, Gensler has emerged as the top US authority shaping regulatory guardrails for cryptocurrencies. He adheres to a strict interpretation that most virtual tokens outside of Bitcoin (BTC) and Ethereum (ETH) qualify as securities subject to SEC supervision. Recently, the Commission prosecuted crypto lending platform BlockFi for failing to register its interest-bearing products.
Meanwhile, the test for determining the security status of digital assets remains unclear in South Korea. Lee intends to study the U.S. approach as a model for Korea’s forthcoming system. The Howey Test used by American regulators scrutinizes whether investors sink money into a common enterprise while expecting profits derived from the efforts of others.
There remains a possibility that South Korea will adopt the Howey Test rules and apply them to crypto assets. This stance that has proven deeply unpopular with the crypto industry in the US and elsewhere. For the most part, industry members maintain that many crypto assets constitute something new that requires new regulations.
Beyond crypto’s legal classification, enforcement cooperation also factors into next month’s high-level dialogue. The meeting may touch on the closely-watched extradition case of Do Kwon, the South Korean founder of failed stablecoin TerraUSD (USTC) whose cratering vaporized an estimated $40 billion last May.
Kwon faces criminal charges in Korea over the collapse. However, a Kwon’s extradition to the United States was delayed by a Montenegrin court this week.
As international authorities grapple with imposing order on the crypto economy, Lee’s FSS has descended into turmoil amid scandals over poor oversight of domestic conglomerates.
Appointed last June, Lee earned recognition as a prosecutor specializing in financial crimes with degrees in economics and law. He now takes on the difficult task of crafting a virtual asset governance regime while restoring credibility to his organization.
The meeting between the two financial regulators will be welcomed in many quarters. This week, Kristalina Georgieva, the head of the International Monetary Fund (IMF) encouraged lawmakers and regulators to align their digital asset rules, saying “crypto asset providers can relocate at the click of a button.”
This also won’t be the South Korean regulator’s first meeting with top foreign regulators. In September, Lee met with China’s head of the National Financial Regulatory Administration, the first meeting of its kind since the new Chinese regulator was established in March.