Virtual Currency Law, Actually Difficult to 'Protect Investors'

Financial Services Commission Submits Data to National Assembly's Political Affairs Committee...First Step Toward Institutional Inclusion
Granting Private Sector Self-Regulatory Authority...Authorities Retain Supervisory Rights Only

[Asia Economy Reporter Gong Byung-sun] The outline of the cryptocurrency law aimed at investor protection has been established. Based on materials from the Financial Services Commission (FSC), if the bill passes the National Assembly, those who misuse undisclosed information about cryptocurrencies or manipulate prices are expected to face sanctions equivalent to those under the Capital Markets Act. However, there are concerns that by entrusting self-regulation to the private sector, the bill may become merely symbolic, and that creating a specialized law solely for cryptocurrencies could complicate the legal system.

According to industry sources on the 24th, the FSC submitted a document titled "Basic Direction and Issues of the Virtual Asset Industry Act" to the National Assembly's Political Affairs Committee the day before. So far, about ten cryptocurrency-related bills have been proposed by lawmakers including Lee Yong-woo of the Democratic Party, Kim Byung-wook, Min Hyung-bae, Yoon Chang-hyun, and Cho Myung-hee. The Political Affairs Committee is expected to discuss the cryptocurrency law based on this material.

First Step Toward Institutional Inclusion... Advanced Level Compared to Overseas

Unlike the amendment to the Act on Reporting and Using Specified Financial Transaction Information (the Specified Financial Information Act) enacted in March, this bill focuses on investor protection. The Specified Financial Information Act amendment only imposed sanctions for anti-money laundering, which was criticized as insufficient for proper cryptocurrency investor protection. According to the materials, financial authorities plan to impose criminal sanctions and recover economic benefits for unfair practices such as misuse of undisclosed information related to cryptocurrencies, price manipulation, and fraudulent transactions, in line with the Capital Markets Act.

Specifically, imprisonment terms are set as follows: at least one year for unfair profits under 500 million KRW, at least three years for profits between 500 million KRW and under 5 billion KRW, and at least five years for profits exceeding 5 billion KRW. Additionally, fines amounting to three to five times the unfair profits will be imposed.

The definition of cryptocurrencies, which has been expanding recently, has also been clarified. Not only general cryptocurrencies but also security tokens, stablecoins linked to fiat currency value, decentralized finance (DeFi), and non-fungible tokens (NFTs) are included in the definition of cryptocurrencies. Among these, security tokens will be subject to the Capital Markets Act if they are deemed securities.

Professor Lee Byung-wook of Seoul School of Integrated Sciences and Technologies evaluated, "Compared to countries like the United States, which have yet to attempt proper regulation, this is an advanced level of regulation," adding, "It marks the first step into the institutional system."

Entrusting Self-Regulation to the Private Sector... "Proper Investor Protection is Difficult"

However, there are concerns that investor protection will be difficult as self-regulation is entrusted to the private sector. According to the materials, certain self-regulatory authority will be granted to the private sector, while financial authorities will retain only minimal supervisory rights. Detailed regulations related to the business activities of virtual asset service providers, cryptocurrency listings, and circulation will be developed by private associations in the future.

But private associations lack regulatory authority comparable to the FSC or the Financial Supervisory Service (FSS), making it practically difficult to protect investors. For example, the FSS can conduct due diligence across various financial sectors such as banks, securities firms, and P2P investment companies, but private associations cannot. Moreover, since they are not fully funded by taxes, it may be difficult to avoid collusion with cryptocurrency exchanges.

Issues of fairness have also been raised. Banks and securities firms are cautious about the words of financial authorities, but there are criticisms that only the cryptocurrency-related industry is favored under the pretext of fostering the sector. Professor Hong Ki-hoon of Hongik University's Business Administration Department said, "The institutional finance sector also needs fostering, but only the cryptocurrency industry is loosely regulated," adding, "If regulations on banks or securities firms are not to be eased, then the cryptocurrency industry should be subject to the same regulations."

Cryptocurrency Industry Act as a Precedent... Concerns Over Proliferation of Industry-Specific Laws

With the establishment of the cryptocurrency industry act, cryptocurrencies can now be managed professionally. However, there are concerns that if demands for industry-specific laws arise every time a new field emerges, the legal system could become overlapping or tangled.

Professor Lee explained, "There was an option to include cryptocurrencies under the Capital Markets Act, but the precedent of the cryptocurrency industry act has been set," adding, "In the future, if new entities appear and demand the enactment of industry-specific laws, it will be difficult to refuse because of this precedent."

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