South Korea has made massive progress in the ICT sector in recent years. The country is well-known for internet speed, with 92% of the population is internet users, and in 2005 they became the first nation to complete the transition from dial-up to broadband internet service. The government is now focusing on cybersecurity and internet regulation through a comprehensive ICT development policy and establishment of necessary institutions.

This advancement in ICT may strike a thought in someone’s mind that Korea might be at the forefront of cryptocurrency adoption as well. This is correct to some extent because bitcoin has found its third-largest market in the country and hence South Korea has turned out to be an attractive place for cryptocurrency investment.

However, the Korean government has not exhibited a friendly attitude toward digital currency so far. There has been an ICO (Initial Coin Offering) ban in the country since 2017 which prohibits any type of receiving investments in exchange for cryptocurrency sales from domestic companies.

Although there were certain logics for the ICO ban, the Korean government is starting to realize the prospect of digital currencies and now trying to amend the past. Their Presidential Committee on the Fourth Industrial Revolution (PCFIR), directly headed by the President, has made a number of recommendations regarding cryptocurrency regulation. The PCFIR is responsible for coordinating policies and reviewing matters about the national master plans developed for the “fourth industrial revolution”, which refers to a highly connected economy supported by new and powerful technologies including 5G, artificial intelligence, and large data.

Controversies around crypto legalization

PCFIR Chairman Chang Byung-Gyu raised the issue of cryptocurrency regulation at the committee’s global policy conference in October this year. Chang stated, “The government needs to establish the legal status of cryptocurrency assets”. Several local media portals highlighted his statement where he appeared to emphasize the improvements in the country’s regulations and administrative policies to inspire innovative projects.

He also pointed at tax and accounting measures around virtual assets so that the government can benefit from cryptocurrency transactions taking place in its territory. The committee also stressed on promoting innovation and the institutionalization of cryptocurrency assets to keep pace with the rest of the world. But different ministries including finance, justice, and information opposed the idea showing several pitfalls of cryptocurrency adoption such as money laundering and terrorism financing.

The PCFIR is not considering these arguments as deterrents to crypto adoption. They heavily criticized the government’s strategy of eliminating speculation and reducing the kimchi premium. In a statement, the committee argued that the conservative attitude of the government is reducing Korea’s global competitiveness in the crypto-asset sectors. They should set policy goals to avoid missing out on future opportunities.

Regulators are taking positive attempts

The Financial Services Commission (FSC), South Korea’s key financial regulator, implemented emergency cryptocurrency policies in December 2017 to reduce the kimchi premium (the gap in cryptocurrency prices in South Korean exchanges compared to foreign exchanges). Some follow-up measures were taken in the next few months, including the real-name system in early 2018.

But very few crypto exchanges could use the system to date. FSC has appointed a new chairman, Eun Sung-soo, who served as the president and chairman of the Export-Import Bank of Korea and headed the Korea Investment Corporation during 2016-17. His experience and vision may help the commission come up with a viable solution to this crypto quo.

The PCFIR’s recommendations have reached quite a high level at the government. Lee Kong-Joo, Advisor to the President for Science and Technology, welcomed the efforts of the committee. A local media published in detail, quoting him as saying, “I will actively consider ways to make these recommendations possible.”

According to the report of Hankyoreh, the Korea Financial Intelligence Unit, which is under the FSC’s supervision, said that it will strengthen cryptocurrency regulations in accordance with the standards set by the Financial Action Task Force (FATF). The FATF organized a plenary a few days later under the Chinese presidency, where the attendees agreed on how it will assess whether countries have taken the required steps to implement the crypto standards. They are now evaluating how the member countries are following guidelines issued in June 2019.