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Will Ethereum 2.0 change the perception of Korean virtual assets?

12/7/2020

The perception of virtual assets that are recognized as a means of 'speculation' is gradually changing. The decline in cash value accelerated by Covid-19 is being transferred to virtual assets including bitcoin (BTC), an alternative asset.

The improvement in awareness of virtual assets is expected to accelerate with the rise of Bitcoin and the release of Ethereum 2.0.

Blockchain is a technology that allows everyone participating in the network to verify the validity of data and record data. As in general, data is not stored on a central server, but is held by a large number of people, so it is difficult to forgery due to hacking. The more participants in the blockchain network, the more reliable and healthy it can grow. Without participants, the blockchain network cannot be maintained.

Vitalik Buterin is the founder of open source Ethereum based on blockchain technology. If Bitcoin is a decentralized 'currency', then Ethereum acts as a 'platform' to create a decentralized service.

Through Ethereum, blockchain services (dApps) in various fields such as finance and distribution can be created. Virtual asset Ethereum (ETH) motivates participants of the Ethereum blockchain network.

In 2014, Vitalik Buterin was selected as the winner of the information technology (IT) software field at the 'World Technology Awards', a Nobel Prize in the field of new technology, overtaking Facebook's Mark Zuckerberg.

Ethereum 2.0 improves the speed, efficiency, and scalability of Ethereum, and it is expected to accelerate the popularization of the blockchain by applying it in various ways in a wider variety of fields.

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Conflict between Korea virtual asset service providers and Korea traditional banks?

12/7/2020

While the government is collecting opinions from industry and experts for amendment of the enforcement decree until the 14th in accordance with the enforcement of the Specific Financial Transaction Information Act revised in March next year, it is clear about the issuance of real name verification accounts for investment in virtual assets and prevention of money laundering (AML). There are constant criticisms that it is confusing because there is no standard.

Virtual asset service providers that require real-name accounts as well as banks that issue accounts have demanded improvement, saying that there are no specific standards in laws and enforcement ordinances, adding to market confusion. However, the Korea Financial Information Analysis Institute (KoFIU) is confronting that it cannot accept the demand for specific standards, saying, "It is difficult to regulate uniformly."

■"Confusion without real name account and AML standards"

According to related industries on the 7th, the industry has been asking the government to clarify the standards for issuing real-name accounts since last month when the revised enforcement decree of the revised special payment law was announced.

In this regard, at a public hearing on the revision of the enforcement ordinance of the Special Money Act held by the Korea Financial Information Analysis Institute (KoFIU), Hwang Soon-ho, head of the Foreign Cooperation Team, and Jung Ji-eun, SC Bank's managing director, pointed out that the criteria for initiating real-name confirmation accounts should be clearer and more objective.

The current enforcement decree of the revised Specific Financial Transaction Information Act stipulates that banks identify and evaluate the risks of money laundering inherent in financial transactions of virtual asset providers based on the start of deposit and withdrawal accounts, which is a responsibility for the bank's subjective judgment. Therefore, it is necessary to alleviate the burden on banks by objectifying the conditions for opening deposit and withdrawal accounts through clearer standards.

Jung Ji-eun, executive director of SC Bank, said, "Because each bank has different standards for evaluating the fulfillment of AML obligations for customers, it would be nice if the criteria for issuing real-name confirmation accounts were defined so that they could exercise compulsory force when AML-related issues arise." It is suggested that there is a need for business regulations that contain clear responsibilities between the governments, and as an alternative, a plan to establish a transaction information sharing system between the three parties can be considered.” Managing Director Jung also pointed out that the simple guidelines and standards for issuing real-name accounts at the level of the Bank Federation's shared level are weak.

Regarding this, KoFIU Director Yo-seop Jeon said, "In order to clarify the standards for issuing real name confirmation accounts, there are opinions that the industry should present evaluation standards in the form of laws and orders, or reflect them in the terms and conditions so that they can be bound by contract." "There are aspects that it is difficult for the government to uniformly regulate because the AML evaluation standards and policies are different for each bank and there are no international standards." He also stressed, "For future needs, we will open a window of dialogue between banks and businesses so that they can be resolved, but the government has no plans to add more regulations."

The request for an extension of the validity period for reporting business operators is also demanding an extension of the validity period for notification of virtual asset business operators prescribed by the Enforcement Decree of the Specific Financial Transaction Information Act. In response to this, the government said, "If the validity period of a report is long, there are areas that cannot be covered in the inspection and supervision part, so we first set it to 3 years, which is the same as the validity period of the information security management system (ISMS)." You can also consider extending the period.”

Meanwhile, in the industry, the issue of reverse discrimination between domestic virtual asset providers and overseas virtual asset providers has also emerged. Since there is no border border in the virtual asset market, regardless of nationality, you can join overseas virtual asset exchanges and trade virtual assets spot and derivatives.

For this reason, some in the industry are concerned that the implementation of the revised Specific Financial Transaction Information Act will cause domestic exchanges to simply convert virtual assets and Korean won into a window for converting virtual assets and won, and that users will only conduct their actual investment activities abroad. In a situation where virtual asset futures trading is also banned in Korea, users are more likely to choose foreign exchanges with various investment options.

Regarding this, KoFIU Planning and Administration explained, "Even if you are a foreign virtual asset business operator, if you do business with a domestic person, you are clearly subject to reporting under the Specific Financial Transaction Information Act," and said, "We will try to resolve the effectiveness through international cooperation with overseas FIUs."

Do you think bank accounts really necessary for digital asset service providers?

Korean virtual asset industry opposes the prohibition of sharing the order book

12/4/2020

In March 2021, amendments to the Special Financial Information Act that regulates virtual asset business operators are in effect, and a clause prohibiting cross-transaction under the Special Financial Information Act, i.e., prohibiting sharing of order books (trading ledgers), caused the outflow of local wealth.

Hwang Soon-ho, head of Dunamu External Cooperation Team, who attended the public hearing on the enforcement decree of the Special Act held online by the Korea Financial Information Analysis Institute (KoFIU) on the 1st, “If (order book) partnership is prohibited, investors will go to foreign exchanges.” He pointed out that domestic operators may experience difficulties.

◆KoFIU “It is difficult to achieve the goal of preventing money laundering”, Reasons for prohibiting order book sharing

According to Article 13, No. 4 of the revised bill of the Special Financial Information Act, 'the act of allowing its customers to trade virtual assets with customers of other virtual asset operators through partnerships with other virtual asset operators is prohibited.' This means sharing the order book between exchanges.

Domestic exchanges have used to share order books with overseas exchanges in order to allow transactions of virtual assets that lack liquidity to be concluded. Binance KR shares order books with Binance headquarters, Huobi Korea shares order books with Huobi headquarters, and Upbit also stopped sharing order books with foreign exchange Bittrex.

Hwang said, “The partnership between exchanges has a net function that can prevent a sharp liquidity fluctuation.” Due to the nature of exchanges where several virtual assets are listed, there are cases where the liquidity of certain coins is insufficient. At this time, it is explained that sharing the order book with other exchanges solves the insufficient liquidity problem and allows members to trade conveniently.

However, in order to comply with the law's purpose of “anti-money laundering,” the Special Funds Act banned it. This is because even if domestic exchanges report their business in accordance with the Special Financial Information Act, foreign exchanges that share order books with domestic exchanges are not, so money laundering cannot be completely prevented.

KoFIU Planning and Administration Director Jeon Yo-seop, who attended the public hearing on this day, said, “The reason that cross-transaction (order book sharing) is prohibited is because we cannot properly know the customers of other (unreported) virtual asset providers. It is difficult to report suspicious transactions because they do not know, and it is difficult to achieve the goal of preventing money laundering.”

◆Domestic investors go abroad, pointing out the “local wealth spill” problem

The problem is that if order book sharing is blocked, more and more investors will go to foreign exchanges. This is because investors are looking for exchanges with rich liquidity. For example, if Binance KR stops sharing the order book, it is traded on Binance.

Hwang pointed out that prohibiting all order book sharing is excessive, saying, “Alliances between KYC (real-name customer authentication) business operators or business licensed by other governments do not violate money laundering prevention, which is the purpose of the Special Financial Information Act."

It has also been pointed out that domestic operators can take over the damage caused by non-reporting by overseas operators. In order to do business with domestic investors under the Special Financial Information Act, even overseas exchanges must comply with the law. This is because there is a provision that says, "Even if the transaction is conducted overseas, the law will be applied if the effect has an effect on the domestic market."

However, it is unlikely that foreign operators will abide by domestic laws, and there is no way to prevent investors escaping to foreign exchanges. Therefore, it is pointed out that the domestic exchange is who suffers damage from the provision of the order book sharing ban.

KoFIU's position is to increase its effectiveness so that foreign exchanges can also comply with domestic laws. Director Jeon Yo-seop said, "Because we are in a cooperative relationship with overseas FIUs, we will solve it through cooperation."

On this day, the public hearing ended without any special progress. Currently, it is the notice period for the legislation of the Special Financial Information Act Enforcement Decree, and the KoFIU will receive an opinion on the enforcement decree by the 14th.

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