Representations of cryptocurrencies and five major banks in South Korea are shown in this illustration. (The Korea Herald)
South Korea’s Financial Services Commission said Monday that efforts to set up a framework for digital assets like bitcoin were underway as part of its larger deregulation initiative to help companies start new businesses without having to worry about regulatory uncertainty.
At a meeting with President Yoon Suk-yeol, the top financial regulator’s chief said his agency would divide cryptocurrencies into security and nonsecurity tokens, and use the existing law to regulate the former while treating the latter with new legislation.
“We have 13 bills sitting at the National Assembly, but I’m thinking the agency could do it on its own,” chairman Kim Joo-hyun told reporters, saying the agency was leaning on sending its own version to the parliament for a vote instead of watching the 13 bills, all floated by lawmakers, turn into law.
In Korea, both lawmakers and the government can create legislation as long as the Assembly approves it.
“We know people are divided over how far authorities should go about regulating the crypto industry … the EU and Japan have revealed their frameworks, and they will be a point of reference,” Kim added, referring to the debate over where to draw the line separating security and nonsecurity tokens.
Security tokens, like stocks, represent ownership, whereas nonsecurity tokens are traded as replacements for traditional fiat currency. The broader the definition regulators use to say what security tokens mean, the stiffer the rules crypto markets are likely to face, according to analysts.
“The digital coins traded here do not hold a stake in something like stocks. For traders to continue trading ‘coins themselves,’ they need regulators to narrowly define security tokens,” said Park Sun-young, an economics professor at Dongguk University.
Once the rules are set, authorities would discuss an initial exchange offering, Park added. A byproduct of initial coin offerings, IEOs use exchanges as middlemen running due diligence on firms floating coins and marketing them to customers. Binance was the first major crypto exchange to back an IEO in 2019.
A month earlier, the five largest crypto exchanges in Korea launched an alliance called Digital Asset eXchange Alliance or DAXA.
The group, which accounts for roughly 90 percent of local crypto trading, said it would prepare to “work with the government on the latest crypto rules.” But many see it as a check on banks and securities firms, which DAXA sees as rivals seeking to dictate terms in crypto rules to their advantage.