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Will the BOK (Bank) of Korea also secure a competitive edge in digital currency (CBDC) technology?

11/30/2020

The pandemic heated up discussions about digital currency. We already know some of the digital currencies. Cryptocurrency is one of them. The recent 1 bitcoin price has exceeded 20 million won, reproducing the glory of 2017.

One of the recent rising factors is that digital currency is now recognized as a substitute. In a memo to investors last August, JPMorgan said that the millennials prefer Bitcoin. “American millennials see bitcoin as a “replacement” for the dollar. Because of this, the correlation between bitcoin and gold is also positive, but there has also been a change between bitcoin and dollar.”

Another axis of digital currency is issued by companies. JPMorgan, a global investment bank, has created a digital currency “JPM Coin” and has been using it for payments at 320 banks around the world since the end of October. Considering that more than 6 trillion dollars a day goes over 100 countries, JPM Coin is more than an event. This is the advantage of JPM Coin that JPMorgan has put forward.

The ability to quickly solve the problem of chargebacks, which can be caused by errors in account information in cross-border payments, saves 75% of the cost of the parties to the transaction by converting the issue of checks to digital currency, checks that took days It is attractive that payments take only a few minutes.

Private cryptocurrency is showing off its presence, and world-class investment banks are also working on digital currency production. "Technology determines how we perceive and use money, whether we like it or not," said Professor Gavin Brown at Manchester Metropolitan University. Eventually, the future of money will come from private cryptocurrencies, coins issued by companies, and the nation's three waves.

In particular, the government will not sit still and wait for the threat to currency.” In fact, according to a survey conducted by the International Settlement Bank (BIS) last year, 80% of central banks in 66 countries around the world answered that they are researching Central Bank Digital Currency (CBDC).

The People's Bank of China established a digital currency research team in 2014 and expanded to a research institute in 2017, filing 84 digital currency-related patents by September 2019, while the BOK (Bank of Korea) established a digital currency research team in February this year. Although it is in progress, there have been no patent applications as of October 2020.

In Korea, Article 14 of the' Basic Act on Electronic Documents and Electronic Transactions' regulates the government's restrictions on the use of cryptographic products and measures necessary for access to cryptographic technology, but it is pointed out that it is necessary to clarify the scope and contents of the application as it is unclear.

The National Assembly Legislative Research Office said, "If China's digital yuan is successfully settled, there is a possibility that the standard and technology of digital yuan will be adopted as an international standard. The Bank of Korea also need to support digital currency-related crypto technology projects, secures patents" Also it emphasized that "It is necessary not only to seek advancement of the payment and settlement system in Korea by strengthening cooperation with related organizations such as the Ministry of Technology and Information and Communication, but also to avoid being pushed in competition for the leadership of related technologies.”

I think, within 2025, the BOK (Bank of Korea) will issue digital currency on a trial basis. How do you think?

3 months postponement of virtual asset taxation in Korea

11/30/2020

In Korea, the taxation period for virtual asset transaction income has been postponed for three months from October 2021 to January 2022.

The National Assembly Planning and Finance Committee of Korea held a plenary meeting on the 30th of last month and decided on amendments to the tax laws such as the Income Tax Act and the Individual Consumption Tax Act.

◆Special Law Business Report Deadline September, Reflect time to prepare tax infrastructure

According to the tax law amendment announced in July, the Ministry of Strategy and Finance classified virtual asset transaction income as other income and applied a 20% tax rate. Up to 2.5 million won per year is a tax-free section, and the time of application is announced in October 2021.

At the time, the Ministry of Information and Communication said, "After the enforcement of the Special Money Act, the tax application period was set on October 1, taking into account the reporting period of the virtual asset business entity." When the revised bill of the Act on Reporting and Use of Specific Financial Transaction Information (hereinafter referred to as the Special Privileges Act) comes into force in March, virtual asset business operators, including exchanges, must meet the set requirements and report their business to the financial authorities. The period for this report is until September, six months after the enforcement.

However, virtual asset providers such as exchanges pointed out that the timing of taxation is too early. In order to cooperate with taxation, the exchange needs to establish a taxation infrastructure, but it is a tight time to build the infrastructure before October after completing a business report in September.

Accordingly, the Korea Blockchain Association, which has exchanges as members, issued a statement requesting that the tax period be delayed.

The association explained, "Because the right to collect personal information of users is granted only when the report is accepted, it is impossible to extract tax data from October 2021, no matter how early it is." It also argued that "the enforcement date should be postponed to January 1, 2023, which is the same as the effective date of the expansion of the capital gains tax on stocks."

◆Stock capital gains tax is 2023, Controversy over equity is expected to continue

The government has reflected the voice of the industry to some extent, but has not fully accepted it. The tax application period was only postponed for three months to January 2022, not to 2023, the same as the stock capital gains tax.

Therefore, the issue of equity with the stock market will continue to be raised. At the time of the statement, the association also said, “The plan to expand the capital gains tax on stocks was relatively short on October 1, 2021, although the effective date was January 1, 2023 even though the taxation infrastructure was in place. He pointed out that it is against fairness to give one preparation period.” This does not change much when the timing changes to January 1, 2022.

Excessively low tax-free limits and high tax rates are also likely to remain controversial. The capital gains tax on stocks has a tax-free limit of 50 million won per year, compared to 2.5 million won for virtual assets. In addition, the tax rate is 20%, with the other income tax rate applied, and the 2% local tax is actually 22%.

For example, if you earn 10 million won in bitcoin (BTC) for one year and lose 5 million won in Ethereum (ETH), the total amount of income is 5 million won under the assumption that there are no necessary expenses. Up to 2.5 million won is a tax-free section, so only the remaining 2.5 million won is subject to a 20% tax rate. Therefore, a person who earns 5 million won in virtual asset investment will pay about 500,000 won in tax alone.

Virtual asset investors criticize the tax rate for being too high. It is pointed out that charging a high tax rate is too much when there is only a special law to regulate virtual asset providers, and there is no legal definition for virtual assets.

One specialized virtual asset investor criticized, “The tax base in the stock market and the tax base in the virtual asset market are markedly different. It is inappropriate to come up with a tax plan without properly recognizing virtual assets as legal assets.

It is expected many Korean people will move to other channels to invest bitcoin or altcoin after the taxation.

Why Kookmin Bank created a virtual asset joint venture company?

11/29/2020

Why did KB (Kookmin Bank) start a virtual asset custody business? Is it advantageous for a bank to establish a joint venture with another company for virtual asset custody?

First of all, maybe you already know, the bank's virtual asset custody is a global trend. Recently, foreign financial institutions are adding virtual assets to their consignment portfolios. The U.S. allowed the Federal Bank's virtual asset custody service in July. Germany also allowed banks to custody virtual assets at the end of last year. Fidelity, a world-renowned asset management company, also established a subsidiary and started a virtual asset custody business from last year.

KB Bank also jumped in quickly to keep up with this global trend. Preparations started relatively early. Previously, KB Bank applied for a trademark called KBDAC (Digital Asset Custody) to the Intellectual Property Office in January of this year. From this point on, there were many predictions that KB Bank would be engaged in the virtual asset custody business. After that, KODA was established in earnest by signing a “business agreement for digital asset collaboration” with HatchLabs (www.rocketpunch.com), Hashed (www.hashed.com), and Cumberland Korea in August.

However, in order for a bank to conduct a virtual asset custody business in Korea, it will have to establish a joint venture like KB Bank. This is because virtual asset custodial companies are included in the 'Virtual Asset Service Provider (VASP)' according to the amendment to the Specific Financial Information Act (SFIA), which will take effect in March 2021.

According to the SFIA, a virtual asset service providers must meet the requirements such as ISMS (Information Protection Management System) certification and anti-money laundering (AML) solution, and report it to the Korea Financial Information Analysis Agency (KoFIU) before operating.

An official at KB Bank said, "Because the bank cannot directly acquire a license for a virtual asset business, should talk to a blockchain startup (related to a joint venture)." KB Bank CEO Moon said, “KODA will report to the KoFIU as a virtual asset service provider with related requirements such as ISMS (Information Security Management System)”.

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Which Major Korean Bank going into blockchain and cryptocurrency business?

11/26/2020

According to D'Street (dstreet.io), KB (Kookmin Bank), which recently announced its entry into the cryptocurrency custodial market, suggested the possibility of linking decentralized finance (DeFi) to its business in the future.

At 'THE CONFERENCE 2020' co-hosted by D'street and Blockcrafters on the 27th, Cho Jin-seok, head of the IT Technology Innovation Center, KB (Kookmin Bank), presented a session on 'Digital Assets and DeFi from the Financial Industry'. “I think that if the existing traditional financial sector in the institutional sector covers the DeFi service, which is insufficient, the risks of DeFi can be covered.” Banks provide collateral loans.”

In fact, there is a possibility that the DeFi service will be linked to the KODA (Korae Digital Asset) project conducted by Kookmin Bank in the future as the hashed will become a link. KODA is that comprehensive digital asset management company, was established with Hashed, a blockchain investor, and declared to enter the cryptocurrency custodial market.

Do you think Kookmin Bank will be the first bank going into cryptocurrency market?

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Special Financial Information Act compel Korean VASPs

11/26/2020

Amendments to the Enforcement Decree of the Special Financial Information Act (Special Act), which compel VASPs (Virtual Asset Service Providers) to report on business, are being legislated, and business operators are expected to re-check factors that may confuse before reporting business.

Deputy Director of the Financial Supervisory Service Lee Hae-Bung appeared as a speaker at the '2020 Korea Define Conference' held at the National Assembly Library on the 17th and gave a presentation on the subject of 'Specific Financial Information Act and Future Tasks', saying, “There was a lot of controversy over the scope of virtual asset providers under the Special Fund Act. , He emphasized that he must be a 'person who deals with virtual assets through sales'.

According to the revised bill of the Special Act, the scope of virtual asset business operators is those who sell, buy, transfer, store, and manage virtual assets.

However, this range was ambiguous and controversy continued. Accordingly, the Financial Services Commission's Financial Information Analysis Agency (FIU), which released the enforcement decree on the 2nd, specified the scope of business operators as virtual asset traders, virtual asset storage managers, and virtual asset wallet service providers.

Deputy Director Lee thought that it is important to do business as a “business” even when trading or storing virtual assets. Legally, business is an act of continuous and repetitive activities for the purpose of obtaining profits.

Deputy Director Lee explained, “Even if it is a virtual asset transaction, it may not be a business activity.”

◆"Should not report as a custodial and service wallet"

After meeting the reporting requirements, virtual asset business operators must report their business by September of next year, after the six-month grace period after the law enters into force. At this time, ISMS (Information Security Management System) certification, which all business operators must have, and real-name authentication deposit and withdrawal accounts, which must be obtained by the KRW deposit and withdrawal business, are prominent requirements. However, in addition to these requirements, there are also requirements that are easy to overlook, so check is necessary.

Deputy Director Lee emphasized that the business conduct to be written down and the actual business conduct should be the same when reporting. He said, “A domestic business operator must write down the type of action to be performed when reporting a business.”

In the case of virtual asset projects that have been outside the institutional scope, the types of external and internal projects may be different, so caution is needed when reporting.

◆Can't share order book with other exchanges

In addition, Deputy Director Lee said that he should be cautious of the actions specified in Article 13 of the Legislative Decree. According to Article 12-4 of the Enforcement Decree, businesses that fail to implement the measures pursuant to Article 13 are subject to business suspension.

In Article 13, there is a sentence stating, "It is prohibited to allow customers to trade virtual assets with customers of other virtual asset providers through alliances with other virtual asset providers." This is a provision that prohibits “sharing an order book (trading ledger),” which virtual asset exchanges have often done. Until now, exchanges have been sharing order books with other exchanges to secure liquidity. Upbit also shared an order book with foreign exchange Bittrex until last year, and Binance KR is sharing an order book with its headquarters, Binance.

There is also a provision in Article 13 to "manage virtual assets not to be handled with a technology that prevents the transfer record from being identified when virtual assets are transferred from one virtual asset address to another". This is a clause prohibiting the so-called 'dark coin'. Korean domestic exchanges have completely abolished the listing of Dark Coins since the N-Room incident where Dark Coins were used.

In addition, Deputy Director Lee also presented tasks after the Special Fund Act. The tasks he presented were ▲ clarifying the regulatory boundaries between existing financial-related regulatory activities and virtual asset trading activities ▲ expanding the allowable range of regulatory sandbox trial operation ▲ the need to enact business laws and transaction laws suitable for the era of digital transformation ▲ Establishing examples of blockchain demonstration commercialization .

Deputy Director Lee emphasized that "De-fi (decentralized finance), stable coin, central bank digital currency (CBDC), etc. should be settled in general (even after the enforcement of the Special Financial Information Act)."

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