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December 28, 2017, the Korean joint task force on cryptocurrency, consisting of
various governmental agencies including the Office for Government Policy
Coordination, Financial Supervisory Commission, the Ministry of Justice and the
Ministry of Strategy and Finance, among others, announced that it will continue
its implementation of its previously announced emergency measures on December
13, 2017 (for more information, please see BKL’s 12/14 newsletter), and in
addition take the following actions.
- Prohibition on the provision
of banking services to non-compliant cryptocurrency exchanges
On December 13, 2017, the Korean government announced
emergency measures in response to the increasingly speculative domestic
cryptocurrency market, including restrictions on the participation of minors,
foreigners and financial institutions on domestic cryptocurrency exchanges
(each, an “Exchange”).
On December 28, 2017, the Korean government stated that
it will further instruct domestic financial institutions to refrain from
providing remittance services to Exchanges that are found to be in violation of
the above restrictions. This is intended to ensure the Exchanges’ compliance
with such restrictions, failing which a non-compliant Exchange’s ability to
operate would be compromised.
Furthermore, the Korean Fair Trade Commission and other
relevant governmental agencies may conduct on-site inspections of the Exchanges
in order to verify their compliance with the consumer protection regulations as
well as to ensure the adequacy of the IT and security systems maintained by an
Exchange. Violations will be reported to the Exchange’s bank, which would then
consider the suspension of remittance services to the Exchange.
- Closure of Exchanges
The Ministry of Justice has proposed the establishment of
a “special law” which would grant the Korean government the ability to order to
closure of an Exchange.
However, we note that the particulars of any such
“special law” have not been determined and no draft legislation or proposal has
yet to be made. The government is in the process of deliberating the merits and
necessity of a “special law” and consequently, we cannot state when any such
“special law” would be enacted or in what form, if at all.
- Enhancement of Personal
The Exchanges currently provide each user (or customer)
with a “virtual” bank account held under the name of the Exchange. Any deposits
or withdrawals made by a user are typically made from the user’s bank account
to the user’s “virtual” bank account held by the Exchange.
This meant that the user’s bank account and the user’s
“virtual” bank account could be maintained at separate banking institutions,
and due to this discrepancy, the bank of the “virtual” account would have
limited access to the user’s personal information.
Previously on September 9, 2017, the Korean government
had issued guidelines instructing domestic banking institutions to refrain from
processing deposits or withdrawals to Exchanges for users whose personal
identity could not be verified. On December 28, 2017, the Korean government has
taken the additional step of prohibiting the practice of utilizing “virtual”
bank accounts. In the future, in order to access an Exchange, a user must
maintain a bank account in their name, at the same bank as that of the
By requiring the “sameness” of the bank accounts of the
user and the Exchange, the Korean government seeks to ensure that banking
institutions utilized by the Exchanges have greater access to a user’s personal
information as well as transaction history. This would facilitate the banks’
compliance with the verification of personal identity requirements as well as
increase their ability to detect any non-compliance with the age and
nationality restrictions and illegal or fraudulent activities, such as money
The Korean government will provide further details,
including how “virtual” bank accounts for existing users, will be transferred
to new bank accounts at a later date.
- Online Marketing
The Korean government has stated its intention to implement certain voluntary
measures to limit the Exchanges’ online marketing and advertising activities,
such as through portal websites. In addition, the Korean government emphasized
its intention to strictly enforce cryptocurrency related regulations and punish
This update is intended as a summary news