Adoption of New York Model?: S. Korea Considers Introduction of an Approval System to Open Cryptocurrency Exchange | BusinessKorea

Tuesday, February 20, 2018

Seoul, Korea
12 February 2018 - 9:00am
Yoon Yung Sil

The South Korean government is positively considering an introduction of cryptocurrency exchange approval system. It has changed its stance over regulations on digital currency exchanges from completely shutting down the exchanges to safely managing them. However, it is highly likely to make a final decision on the issue after holding local elections in June.

An official from the government ministry participating in a virtual currency task force said on Feb. 11, “We are positively considering the adoption of an exchange approval system as the additional regulation on cryptocurrencies. We are most likely benchmark the model of the State of New York that gives a selective permission.

The New York State allows exchanges to trade virtual currencies only when they have a license dubbed “BitLicense” issued by the New York State Department of Financial Services (NYSDFS). The industry also has a very high entrance level as there are 15 detailed regulations such as a certain amount of capital and quarterly financial reports. This is why only three to four types of authorized digital currencies. When the country accepts the model from New York, it will be able to bring cryptocurrencies into the institutional system as well as supervise the market in an orderly manner, according to the government.

In the beginning of the discussion, the majority of market experts thought the government will adopt the hard line policy including the closedown of exchanges. The market was in an uproar when the Ministry of Justice (MOJ) announced a plan to shut down exchanges last month. The Financial Services Commission (FSC) has also insisted that virtual currencies should be restricted on a similar act of receiving and be permitted for exceptional cases only.

The government’s stance has changed largely due to the fact that the speculation in cryptocurrency trading subsided. The price of digital currencies was over 20 million won (US$18,332) early last month but it fell to 8 million to 9 million won (US$7,333 to 8,249) now. The government thinks that it doesn’t need to regulate the virtual currency market unless it has become excessively overheated. In short, there is no need to use a hard-line policy, including a total ban on trading, as the speculation has subdued.

In addition, a ban on digital currencies will have an adverse effect on the development of the promising blockchain industry. Officials from the industry claim that virtual currencies are the result of takin part in the blockchain industry but the two are closely related.”

The Ministry of Strategy and Finance is aggressively planning to adopt the exchange approval systems. Deputy Prime Minister and Minister of Strategy and Finance Kim Do-yeon also recently said, “We don’t need to get rid of or suppress digital currencies.” The MOJ and the FSC basically agrees to ban virtual currencies but are acceptable to approval systems as long as they trictly manage them like New York.

However, they will make a final decision late. Even approval systems will greatly affect the market so it is a burden to announce them before local elections. When the government announced to close down exchanges last month, an approval rating for the government decreased as well. Some say that International Monetary Fund (IMF) and G20 will have an international discussion about cryptocurrencies so it is not too late to come up with measures after the discussion.

An official from the government said, “Some even say that the government should impose taxes instead of putting additional regulations if the market volatility remains same at the current level. We will hold a meeting to respond to national petition related to digital currencies this month but we are highly likely to make up for the defects of existing measures only at the meeting.”


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