First Cryptocurrency Bill Examined: "Lacks Practicality"

Experts: "Existing Bills Are Sufficient... Financial Services Commission Approval Only Causes Confusion"

Lee Yong-woo, a member of the Democratic Party of Korea, is holding a press conference on the 7th at the National Assembly to propose the "Virtual Asset Business Act." The core of the "Virtual Asset Business Act" is to protect investors by allowing compensation for damages and confiscation and recovery measures if unfair trading practices occur in the virtual currency industry, where investment damages are rapidly increasing. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Gong Byung-sun] On the 7th, Lee Yong-woo, a member of the Democratic Party of Korea, proposed the Virtual Asset Business Act, marking the introduction of the first cryptocurrency industry-specific law. As interest in cryptocurrencies has recently increased alongside growing calls for investor protection, the Democratic Party proactively initiated the establishment of this industry-specific law.

Experts agreed on the direction of the bill. They emphasized that the state must step in to protect investors from scams such as market manipulation or fraudulent schemes where operators disappear after raising investment funds. Professor Lee Byung-wook of Seoul School of Integrated Sciences and Technologies said, "Since the 2017 boom, there have been continuous calls for mechanisms to protect investors," adding, "Although it may be somewhat late, it is positive that investor protection is being addressed now."

However, the consensus among experts is that the bill has more problems than benefits. They pointed out that the bill is contradictory and unrealistic, potentially causing adverse effects even on the stock market.

Financial Services Commission Approval Required but Regulation is ‘Loose’

First, it was criticized that cryptocurrency trading operators must obtain approval from the Financial Services Commission (FSC) even though cryptocurrencies are not financial products. Professor Lee said, "Cryptocurrencies have unclear intrinsic value, making it difficult to classify them as financial products," and added, "If the FSC intervenes without a clear definition of cryptocurrencies as financial products, there is a high possibility they will be perceived as such."

In fact, the bill does not define cryptocurrencies as financial products. According to the bill, virtual assets are defined as intangible assets with economic value that can be electronically evidenced and are subject to trade or transfer.

Ultimately, cryptocurrency trading operators will receive FSC approval but will be exempt from the stringent regulations that apply to financial products. The bill does not include provisions related to the Capital Markets Act, which regulates financial products, but instead introduces regulations applicable to general assets such as the Door-to-Door Sales Act and the Fair Trade Act. Professor Hong Ki-hoon of Hongik University’s Business Administration Department pointed out, "If the FSC is responsible for approval, it will bear all responsibility for issues arising in the cryptocurrency market. Nevertheless, if the cryptocurrency industry escapes regulations equivalent to the Capital Markets Act, the industry-specific law will gain the status of a special law."

Concerns Over Stock Market Confusion

There are also concerns that the bill could cause confusion in the stock market. This is because cryptocurrency exchanges like Upbit and Bithumb would be placed on an equal footing with the Korea Exchange. Professor Hong explained, "The Korea Exchange is the only platform in the country where stock trading can occur and holds the authority to closely monitor all companies," adding, "If the public is informed that these exchanges have been approved as virtual asset operators by the FSC, they may easily perceive them as having the same status as the Korea Exchange."

The practicality of the bill is also questioned. If the FSC is designated as the approving authority, it will also be responsible for monitoring the cryptocurrency market in the future, but it currently lacks the capacity to do so. As of the end of 2020, the FSC manages 2,268 companies listed on the KOSPI and KOSDAQ, with about 200 employees handling this task. However, on the 7th, the daily trading volume of the four major domestic cryptocurrency exchanges (Upbit, Bithumb, Korbit, Coinone) reached 45 trillion won, nearly three times that of the KOSPI. Without hiring several times more staff, if existing FSC employees are tasked with monitoring the cryptocurrency market, the workload could become overwhelming, making it difficult to manage the existing stock market effectively.

Ultimately a Patchwork of Existing Laws... Administrative Waste Also Criticized

Experts also criticized the bill as merely a patchwork of existing laws. Regulations related to anti-money laundering, prohibitions on door-to-door sales, telemarketing sales, multi-level marketing, and unfair trade practices are all already covered by existing legislation. Professor Lee said, "Amendments to the Act on Reporting and Using Specified Financial Transaction Information have already established self-regulatory measures for anti-money laundering at cryptocurrency exchanges," adding, "Since existing laws can sufficiently address these issues, the necessity of the industry-specific law is questionable." Professor Hong stated, "This bill actually proves that the regulatory framework is not lacking," and emphasized, "For investor protection, the executive branch?not the National Assembly?should designate the competent authority and exert administrative power such as investigations."

Meanwhile, according to Upbit, a domestic cryptocurrency exchange, as of 10:50 a.m. on the 10th, Bitcoin recorded a 0.29% increase from the previous trading day, reaching 71.71 million won.

This content was produced with the assistance of AI translation services.