In Korea, as the number of investors participating in the virtual asset market has rapidly increased and concerns have been raised that various social problems may arise, it was suggested that measures to protect market participants such as investors need to be prepared promptly.
In a financial brief discussion published by the Korea Financial Research Institute, “Virtual asset is currently rapidly evolving and developing, so it is very difficult to incorporate it into one regulatory framework. However, in Korea, money laundering regulations, virtual asset business reporting system, and user property protection are very difficult. It is partially institutionalized to the extent necessary, such as separate storage of deposits for security purposes. In addition, it is necessary to consider aspects when discussing the possibility of comprehensive institutionalization.”
Research Fellow Lee Soon-ho said, “The virtual asset market is currently growing very rapidly and is evolving in various directions, and accordingly, discussions on the regulatory supervision of virtual assets are actively in progress in major overseas countries.” It was the FATF guidelines that reinforced the responsibilities of businesses in relation to the prevention of money laundering and terrorist financing.
“The major countries are responding to virtual assets by applying existing financial laws or by utilizing the regulatory authority’s rule-making power, and are reviewing legislation to establish a new regulatory system.” “Toward the direction of regulatory oversight for the domestic virtual asset market. We need to consider the principles.”
Regarding this, “First, to increase the integrity, transparency and soundness of the virtual asset market, it is necessary to thoroughly crack down on illegal activities and strengthen the qualification requirements of virtual asset handling establishments. Second, it is necessary to clarify the authorities responsible for the regulation of virtual assets. It is necessary to designate it, and organic cooperation between relevant ministries and international cooperation is very important,” he suggested.
“Third, if profits are realized from virtual asset investments and transactions, it is reasonable to tax them, and it is essential to prevent money laundering, strengthen consumer protection, and make it mandatory to report the handling business in order to ensure that the relevant regulatory and supervisory system operates smoothly.” Fourth, it is necessary to take care not to apply regulations in a way that is an obstacle to fostering future industries related to digital innovation and digital transformation.”
Recently, the investment fever in virtual assets1) represented by Bitcoin has been very hot. CoinMarketCap, which provides information on the trading trends of major virtual assets around the world, is paying attention to 377 virtual asset handling businesses as of May 12, 2021. The number was 9,716 and the market capitalization amounted to $2.54 trillion. Bloomberg of the United States reported that the market capitalization of virtual assets traded on April 5 exceeded $2 trillion for the first time, and the market capitalization of virtual assets at the end of a month or so increased by more than 27%, which is very fast. It was showing an increasing figure.
As of May 26, about two weeks, the number of virtual asset exchanges and the number of virtual asset exchanges increased to 384 and 10,054, respectively, while the market capitalization of virtual assets fell by about 30% to USD 1.76 trillion, showing great volatility. Among these, major countries such as the United States, Germany, and Japan are actively discussing regulatory supervision measures for virtual assets, and in Korea, regulations are applied to virtual asset business operators under the’Specific Financial Information Act’, and income tax is taxed on the profits of virtual asset sales. Various discussions are underway on whether or not to protect investors.
The report also explained the regulations of each country. The FATF explained that as a result of analyzing more than 100 related cases collected over three years from 2017 by member countries around the world, it pointed out that criminals have been using virtual assets to raise funds for the avoidance of financial sanctions and terrorism support.
Accordingly, the FATF adopted the FATF recommendation on virtual assets in 2018, and has been continuously strengthening regulations, such as stipulating the matters that virtual asset service providers must comply with in 2019. To this end, Korea also revised the’Specific Financial Information Act’ and is in effect on March 25 this year. In this revised law, virtual asset business operators are obligated to make transactions through real-name accounts and report to the Financial Intelligence Unit (FIU) in order to reinforce transparency, accountability, and investor protection related to virtual asset transactions. He explained that this is a level that meets international standards related to virtual asset transactions, and can be viewed as an inevitable and natural measure to increase the transparency of transactions related to virtual assets.
The report also explained the direction of supervision in the US, Germany and Japan.
Below is the regulatory direction of each country extracted from this week’s discussion of the report = Direction of virtual asset regulatory supervision
(Research Fellow Soonho Lee)
FinCEN (Financial Crime Enforcement Network), a regulatory agency related to suspicious transactions in the United States, has prepared and applied anti-money laundering guidelines for virtual currency since 2013. FinCEN sees the act of sending and receiving any value in lieu of money as a money transmission service, and stipulates that the guidelines apply because virtual currency exchangers and managers are also remittance companies. Virtual currency handling businesses must acquire a remittance business license for each state or a separate virtual currency handling business license (BitLicense, New York), and must register with FinCEN as a money services business. Failure to comply with the registration can result in fines of up to $5,000 for each violation, and the Treasury Secretary can sue to halt the violation.
In addition, the Securities and Exchange Commission (SEC) is currently applying related regulations on security tokens in accordance with its own rule-making power. The SEC considers that the security token issued through the ICO corresponds to securities, and supervises the related transactions and handling businesses by applying the regulations applicable to the securities business and stock brokers. Nevertheless, at a recent parliamentary hearing, SEC Chairman Gary Gensler testified that it is necessary to explicitly regulate virtual asset providers by enacting legislation rather than the SEC’s rule-making power.
In 2014, when Japan announced its policy to regulate virtual assets, including bitcoin, it prepared general guidelines including taxation of bitcoin. The draft guideline contains comprehensive details such as the nature of virtual assets such as bitcoin, financial institution regulations, and tax imposition regulations, and treats virtual assets as’commodity’ such as precious metals. Meanwhile, as hacking incidents of bitcoin handling businesses followed, public opinion that consumer protection should be strengthened has emerged. Accordingly, in May 2016, the’Funds Payment Act’ was amended to block the voice use of virtual assets and allow the functions as general currency such as electronic payment and remittance through virtual assets to lay the foundation for market activation. . With the introduction of the registration system for virtual asset exchangers, the Fund Settlement Act made it mandatory for exchange companies to manage information safety, protect users, and manage user assets separately.
The German Financial Supervisory Authority (BaFin) revised the guidelines on the concept of financial instruments in the Banking Act of July 2013 (Kreditwesengesetz (KWG)) to provide interpretations related to virtual asset transactions. According to this, financial instruments are classified into securities, short-term financial market instruments, foreign exchange, units of account, and derivatives. Virtual assets are subject to the rules related to the category of accounting units.
An accounting unit is defined as similar to a foreign currency, although not a legal currency, as a function of a private payment method in the transaction of goods and services, or as a payment method that replaces currency in multilateral liquidation by judicial contracts. Accordingly, if services related to virtual assets that go beyond simple exchange of virtual assets and goods or services are included in the category of financial services defined under German banking law, the company providing these services must obtain approval under the Banking Act. . On the other hand, in the case of bitcoin transactions, income tax is not levied in the case of private transactions such as sales within the trading platform or in the case of bitcoin owners paying for goods or services in bitcoins, and in the case of commercial transactions, corporate tax is imposed.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.