Korean Special Information Act Law Enforcement, Points to Note for Virtual Asset Investors

As the amendment bill of the Specific Financial Information Act (Special Act) that regulates virtual asset business operators is being implemented from the March 25th, attention is also focused on whether there are any points that general investors should pay attention to.

The Korean Financial Services Commission announced at a state council meeting on the 16th that the revised bill for the enforcement ordinance of the special money law was decided. The amendment to the enforcement decree specifically stipulates the matters entrusted by the decree regarding the obligation to prevent money laundering (AML) of virtual asset providers.

First of all, the scope of virtual asset providers became clear. This includes exchanges, custodial (trusted) companies, and wallet companies. This is not the case when simply providing a P2P (person-to-person) trading platform or a wallet platform without fees.

Virtual asset business operators must report to the Korean Financial Information Unit (KoFIU) and operate by September 24th, when the grace period ends. At this time, there are requirements for acceptance of the report.

In the case of exchanges, it is necessary to secure information protection management system (ISMS) certification, and to secure a real name confirmation deposit and withdrawal account from a bank to support the deposit and withdrawal service in won. The obligation to prevent money laundering, such as customer verification, reporting of suspicious transactions, and actions taken by virtual asset providers, must also be fulfilled, but violations are subject to supervision after acceptance of the report.

The factor that most affects investors in the special money law is whether the exchange continues to operate. Currently, there are only four exchanges that have received real name confirmation deposit and withdrawal accounts from banks: Bithumb, Upbit, Coinone, and Korbit. Exchanges that use a so-called honeycomb account (a corporate account of an exchange) other than a real-name account must report business with a real-name account by 24th September, the deadline for reporting.

After the filing deadline, we cannot provide KRW deposit/withdrawal service to a honeycomb account. If the KRW deposit/withdrawal is not provided, the market competitiveness is deteriorated, so some exchanges may give up reporting and fail.

Investors should be careful not to suffer damages related to this. The Korean Financial Services Commission said, "We hope that you should check the status of reporting by existing business operators (exchanges) and whether or not the business continues, and make virtual asset transactions.

One more thing to note is that the virtual asset business operator who has not received the report collects the resident registration number. The KoFIU recommends that existing virtual asset business owners perform the customer verification obligation (residence registration number verification) under the Special Act after acceptance of the report.

Therefore, when a business operator (exchange) that has not received a report collects a resident registration number, it is necessary to check the information management status of the business operator and whether the business continues.

In addition to monitoring the business continuity of virtual asset providers such as exchanges, there are points that need to be prepared in practice. Industry insiders said that investment should be avoided for virtual assets that are “only listed” on certain exchanges.

As the virtual asset market is booming in recent years, some exchanges are accelerating listing. In particular, if a promising virtual asset is listed alone, it is advantageous in terms of exchange revenue because it can secure initial transaction volume. As a result, many exchanges are promoting the brand by proposing 'single listing'.

However, with the enforcement of this special law, it has become difficult to predict whether the exchange will continue to operate. If you have a large amount of virtual assets listed on an exchange that is scheduled to close, if the exchange closes, there will be no place to trade the virtual assets. Since you cannot transfer money to other exchanges, you will in fact suffer money loss.

An official in the domestic virtual asset industry said, "After the enforcement of the Special Act, investors should pay special attention to coins listed solely on specific exchanges. It is possible that the exchange will cease to operate." 

"Also During the grace period after the enforcement of the Special Act, it is recommended to look at virtual assets that are listed on various exchanges and have rich liquidity."