Special Financial Information Act compel Korean VASPs

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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