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Jipyong News|KOREA LEGAL INSIGHT

Proposed Amendment to the Enforcement Decree of the Act on Reporting and Use of Specific Financial Transaction Information

2020.12.07

Do the Proposed Amendments Provide Clear Guidelines to Virtual Asset Businesses in Korea? 
 
The amendment to the Act on Reporting and Use of Specific Financial Transaction Information, etc. (Hereinafter the “Act”) which introduces reporting requirements and anti-money laundering obligations for virtual asset businesses kicks in from March of 2021. Regulating virtual asset businesses has been a controversial subject in Korea for quite some time now and the amendment to the Act aims to address this very subject. On November 3, 2020, the financial authority announced a proposed amendment to the Enforcement Decree of the same Act (hereinafter the “Proposed Amendment”), and commenced the opinion gathering process. 
 
The Proposed Amendment primarily regulates (i) the scope of virtual asset businesses covered by the Act; (ii) the scope of virtual assets; (iii) specific criteria for issuing real-name accounts; (iv) criteria for recipients of information upon transfer of virtual assets (i.e. the Travel Rule); and (v) the schedule and method of reporting required of virtual asset businesses. The following tables sets forth major highlights of the Proposed Amendments.

While the Proposed Amendment does clarify some issues related to virtual asset businesses, there are still some ambiguities that must be clarified in order to provide market players engaged in this business with clear guidelines. 
 
As a specific example, the Act requires a real name account issued by a commercial bank for virtual asset businesses to fulfill their reporting obligations. In order to address confusion and disputes caused by the commercial banks’ reluctance to issue real-name accounts to small and medium-sized cryptocurrency exchanges, the Proposed Amendment provides specific criteria for issuing real-name accounts. However, as such criteria do not include any mandatory obligations on the part of commercial banks to issue real-name accounts, they are likely to issue real-name accounts only upon clearing any and all concerns they may have about money laundering. Therefore it is still hard to say whether the commercial banks’ position towards small and medium-sized virtual asset businesses will dramatically change as a result of the introduction of the new criteria. 
 
The Proposed Amendment also requires virtual asset businesses to obtain an information security management system (ISMS) certification to fulfill their reporting obligations. It is worth noting that the ISMS certification will most likely be quite costly as it may require independent consulting and solution maintenance, not to mention being time consuming. Thus, those who are interested in engaging in the virtual asset business would need to consider these factors in planning their budget and schedule. 
 
Lastly, the Act and the Proposed Amendment do not provide a definitive list of virtual asset businesses that are subject to and covered by the Act. While the financial authority announced through a press release that the Act would only apply to “major virtual asset businesses” such as virtual asset traders, virtual asset storage management and virtual asset wallet service providers, such position has no binding effect if not incorporated into the actual text of the Proposed Amendment. In order to avoid market confusion, a clear definition or guideline as to what virtual businesses would be covered under the Act needs to be set forth in the Act or its Enforcement Decree. 
 
All in all the Proposed Amendment is meaningful in that it will provide much-needed guidelines and criteria to market players engaging in the virtual asset business. That being said there is still room for improvement and clarifications which should be addressed in the opinion-gathering process.

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