South Korea's Central Bank to Strengthen Crypto Scrutiny

Introduction

In a significant development in South Korea's ongoing efforts to establish regulatory norms for the country's burgeoning cryptocurrency sector, the Bank of Korea (BoK) has been given the authority to ramp up its scrutiny of cryptocurrency service operators and issuers. The move comes amidst continued discussions and debates surrounding virtual asset legislation in the country. It also highlights the ongoing power struggle between the BoK and the Financial Services Commission (FSC) over who should have the authority to regulate the digital asset sector.

Bank of Korea's New Authority

According to a recent report by local media outlet The Korea Herald, the BoK has been granted the right to investigate operators of cryptocurrency-related businesses. This development was confirmed by an official from the National Assembly's Political Affairs Committee. The move is expected to accelerate the rollout of South Korea's virtual asset laws, which have been the subject of heated debates and disagreements between the country's central bank and its financial regulator, the FSC.

The BoK has expressed concerns about the potential financial stability risks posed by stablecoins and will now be able to request transaction data from cryptocurrency exchanges. The FSC, however, retains the final say in governing the regulation of the digital asset sector and is expected to express its official position at a subcommittee meeting on April 25.

The Ongoing Power Struggle

The struggle for jurisdiction over South Korea's cryptocurrency sector has been ongoing for the past three years, with both the BoK and the FSC vying for control. Democratic Party lawmaker Kim Han-gyu, who proposed the country's crypto regulations, known as the Crypto Assets Act, stated that the FSC admits the necessity for the BoK to have the right to request data but is refusing to include it in the bill.

The FSC has previously warned that if the central bank governs crypto, it would send the message that digital assets have the same standing as traditional finance, a stance it does not agree with. The FSC chair has gone on record stating that he does not consider crypto a financial asset.

Officials from the Political Affairs Committee, a division of the country's State Affairs Commission, have accused the FSC of attempting to monopolize its position as a crypto regulator. With the latest development, both the South Korean central bank and its financial regulator will have the authority to investigate crypto operators and access transaction data, potentially leading to increased regulatory oversight and enforcement actions in the country's digital asset sector.

The FSC's Recent Enforcement Actions

In line with its stance on digital assets, the FSC has been active recently in taking enforcement actions against crypto companies. It shares a similar position with the United States Securities and Exchange Commission, considering crypto assets as securities. South Korea's Financial Supervisory Service, which operates under the FSC, announced the formation of an investigative body called the Digital Assets Committee in mid-2022.

Implications for South Korea's Crypto Industry

This intensified regulatory scrutiny is expected to have significant implications for South Korea's burgeoning cryptocurrency sector. As the central bank and the financial regulator are granted greater access to transaction data and the authority to investigate crypto operators, the industry may face a higher level of compliance and regulatory oversight.