South Korea’s central bank, the Bank of Korea (BoK), will have the authorization to escalate its supervisory role over cryptocurrency service providers and issuers. It comes amidst further discussions regarding virtual asset legislation in the country, and amid competition between the BoK and the country’s financial regulator, the Financial Services Commission (FSC), over crypto jurisdiction. The FSC will still ultimately have the final say in governing the regulation of the digital asset sector.
The BoK has highlighted concerns over the financial stability risks of stablecoins and will now have the power to request transaction data from cryptocurrency exchanges. An official from the National Assembly’s Political Affairs Committee confirmed the BoK’s right to request data from digital currency operators. The FSC will express its official position at a subcommittee meeting scheduled for April 25, and it is expected to accelerate the rollout of South Korea’s virtual asset laws.
Democratic Party lawmaker Kim Han-gyu, the individual who proposed the country’s crypto regulations, said that the FSC acknowledges the necessity for the BoK to have the right to request data but is refusing to include it in the bill. The South Korean government has been attempting to push crypto legislation forward, but there have been disagreements between the BoK and the FSC over who should control it.
The FSC has warned that if the central bank manages crypto, it will send the message that digital assets have the same standing as traditional finance. One FSC chair has previously stated that they do not consider crypto a financial asset. The two institutions have been at loggerheads for the past three years over crypto regulations, with officials from the Political Affairs Committee, a division of the country’s State Affairs Commission, accusing the FSC of trying to monopolize its position as a crypto regulator.
The latest development means that both the South Korean central bank and its financial regulator will be able to investigate crypto operators and have full access to transaction data. The FSC has been active recently with enforcement actions against crypto companies and shares the same position as the United States Securities and Exchange Commission in that it considers crypto assets as securities. South Korea’s Financial Supervisory Service, which falls under the FSC, launched an investigative body called the Digital Assets Committee in mid-2022.
Despite the continuing regulatory disputes, South Korea’s cryptocurrency market remains active. According to a report by blockchain security firm CipherTrace, the volume of unregistered cryptocurrency transactions in South Korea rose to $4.2 billion in 2022, considerably higher than the previous year’s $1.9 billion. According to the report, cryptocurrency-related scams, money laundering, and unregistered business activities fueled the growth.
The rising demand for crypto and the ongoing regulatory discussions have sparked interest in blockchain and cryptocurrency-related startups in South Korea. Earlier this year, the country’s largest cryptocurrency exchange, Bithumb, attracted bids from multiple consortiums, including one led by STIC Investments, a private equity firm. STIC Investments is reportedly in talks with Bain Capital to launch a special-purpose acquisition company (SPAC) to acquire Bithumb.
In conclusion, the Bank of Korea gaining an upper hand in crypto-related businesses could have a significant impact on South Korea’s crypto industry. With the country known for being one of the most active crypto markets globally, this move may help to stabilize the industry and increase trust in cryptocurrencies. South Korea’s progress in crypto regulation will also attract more investors, startups, and multinational companies in the blockchain and crypto space, ultimately enhancing the country’s economy.
