In brief
- South Korea has passed the Special Financial Information Law, requiring local exchanges to comply with FATF guidelines.
- Exchanges will be required to register with local financial authorities to operate.
- Crypto industry executives believe the law will help to legitimize the sector.
The National Assembly of South Korea’s legislation and judiciary committee has passed the “Special Financial Information Law”, a key piece of crypto legislation.
The legislation, approved on March 5 following a delay caused by the coronavirus outbreak, significantly tightens quality control in the crypto industry, specifically around local crypto exchanges.
It requires crypto exchanges to comply with the Financial Action Task Force’s (FATF) guidelines on anti-money laundering (AML) and terrorist financing prevention. Exchanges will also need to receive approval from the Financial Services Commission (FSC) and the Korea Internet & Security Agency to operate in the country.
Protection against hackers and bad assets
The Special Financial Information Law requires local exchanges to obtain an information security management system (ISMS) license from KISA. That would decrease the probability of hacking attacks and security breaches, an issue which South Korean exchanges have struggled to deal with over the past two years.
To date, only six exchanges in the country have obtained an ISMS license from KISA, including the “big four”—UPbit, Bithumb, Coinone, and Korbit—alongside Gopax and Hanbitco.
As part of their compliance efforts, South Korean exchanges are proactively ramping up their quality control efforts by delisting digital assets that do not meet the standards of the exchange.
If an asset does not have an active development team that communicates with the exchange to solve key issues, has a low level of development, low volume, and no understanding of South Korea’s crypto market, it becomes subject to a rigorous delisting process.
Local crypto industry welcomes Special Financial Information Law
The local crypto industry welcomed the passing of the new legislation. Blockchain Association of South Korea’s chairperson Kim Seong-ah—who also operates major South Korean crypto exchange Hanbitco—said that the legislation would further legitimize the crypto industry over the long-term.
“The legislation would allow crypto exchange market to escape from poor public perception regarding fraud and malpractice,” she said, adding that it would provide a foundation on which the industry could build transparency and trust.