Dealing with the repercussions of the multibillion Terra-LUNA debacle, regulators in South Korea are embarking on reforms in the financial sector that could potentially include the direct involvement of banks in the US $ 42 billion crypto industry of the country.
“Ultimately we will allow domestic financial companies to do what global financial companies do,” said Financial Services Commission of Korea (FSC) Chairman Kim Joo-hyun last week at the financial regulator’s first. convene to discuss regulatory reform in Seoul.
“The goal is to prepare the field for domestic players in the global financial market like BTS to show up,” he said.
“In the midst of soaring interest rates, liquidity in the financial sector should not only remain for safe assets,” Kim previously said in a speech after being appointed to the position on July 11. “You must be induced to flow to the innovative sector.”
“He believed that [Korea’s] digital finance requires innovation, and reform is a good way for the administration to distinguish itself from the last,” said the president of the Korea Society of Fintech Blockchain (KSFB) Kim Hyoung-joong. Forecast. He is not related to the Chairman of the FSC.
The development comes as South Korea deals with the fallout Terra-LUNA collapse that cost investors billions of dollars.
See related articles: What lessons can be learned from the LUNA/UST Terra crisis?
South Korea’s crypto market grew to more than 55 trillion Korean won (US$42 billion at current prices) by the end of 2021, with the number of users reaching more than 15 million people, according to Korea Financial Intelligence Unit (KoFIU). The crash hit the Korean market at its best – affecting an estimated 280,000 investors in South Korea, with many claiming to have lost their life savings, and some even taking their own lives.
In the latest development in the saga, South Korean prosecutors have asked the Ministry of Justice they were notified if Do Kwon comes to the country. He also called for a travel ban on Terra founder Shin Hyun-seung.
Moving forward
“When the regulator actually relaxed the regulations [on crypto]Terra-LUNA will be a storm in a teacup,” Kim told KSFB. “Without investigation, this government seems to believe that digital reform in the financial sector is the way to go.”
“Absent an investigation, this government seems to believe that digital reform in the financial sector is the way to go.”
Kim Hyoung-joong, Korea Society of Fintech Blockchain
The FSC will prioritize the review of restrictions on the scope of business and subsidiaries of financial companies such as banks and securities companies, according to regulatory regulations. press release.
At Korea Federation of Banks (KFB) It has been recommended to the FSC that banks are allowed to pursue business in the cryptocurrency industry. According to current regulations, banks cannot acquire more than 20% of shares in non-financial companies. In addition, banks are limited to direct operations or have subsidiaries in other businesses involved in the crypto industry.
So far, local banks have only been able to tap into South Korea’s sizable crypto market by investing in the sector.
Banking in financial institutions
“There were requests from several banks to the federation, and internally we concluded [making the suggestion] necessary,” said a representative for the Digital Innovation team at KFB Forecast.
The promise of the chairman of the FSC to “accelerate the development of infrastructure for digital financial innovation,” by “creating a regulatory framework for emerging digital sectors such as crypto assets and fractional investments,” among other things has made bank lobby groups hopeful.
See related articles: South Korean banks seek green light on crypto
“Banks have stricter internal policies and management in terms of financial regulations, so we expect that banks will come in.” [into the crypto market] will contribute to the integrity of the market,” said a KFB representative Forecast.
“Once in [traditional] the financial sector moves to the digital asset industry, the image and recognition of the crypto space will be more favorable to Koreans, “because of the strict regulations that monitor the financial sector, Kim told KSFB. “I am optimistic about this.”
But not everyone thinks that this is the best.
“If financial companies, including banks, can jump into crypto investment, financial distrust will increase with great damage to society,” said Bae Jin-gyo, a lawmaker for South Korea’s Justice Party in press conference while answering questions about the planned financial reforms.
“If financial companies, including banks, can jump into crypto investment, financial distrust will increase with great damage to society.”
Bae Jin-gyo, Justice Party of South Korea
In addition, there is a risk of too much concentration of power in the hands of large financial institutions that could lead to market and inequality problems, he said.
Currently, only Upbit, Bithumb, Coinone, Korbit and Gopax can offer cash-to-crypto services in Korea. This is after the following rule changes which requires crypto exchanges in the country to partner with local banks so that investors and crypto traders use their real names to transfer funds. These rules are intended to prevent money laundering.
KSFB’s Kim has his doubts about the prospect.
“The statement that banks will take over the space for startups just because people have a certain trust in banks is not possible,” Kim said. “They will not allow banks to expand their crypto businesses indiscriminately into the startup realm.”
“If banks are also allowed to invest [more] to the digital asset industry, this creates a very good environment for startups,” he said. “If [a startup] have a good business model, they can take it to the bank and get a good investment,” Kim said Forecast.
Still some way to go
After the regulator approves, South Korea’s National Assembly must process any deregulation, KFB representatives said Forecast. “So we can’t say when [deregulation] it will happen,” the representative added.
Some of the 234 recommendations made by the KFB include lifting the 2017 ban on initial coin offerings (ICOs), allowing corporate and institutional investors to access the crypto market, and reducing requirements when it comes to exchanges sharing customer information with banks.
See related articles: The incoming S.Korean government is pushing to end the ICO drought
The FSC says a balanced regulatory system will lead to responsible growth in the sector. This will ultimately improve the prospects of Korea-based crypto projects, according to the founder and chief executive of South Korean crypto auditing company Sooho.io, Jisu Park.
“More government oversight could be one effective way to encourage crypto startups here to take compliance and risk management more seriously,” Park said.
KB Securities, one of the five largest securities companies in the country by revenue, declare Memorandum of understanding (MOU) with SK C&C, an information technology subsidiary of SK Group to build infrastructure and build a platform based on digital assets. KB and SK C&C show their determination to use blockchain technology in all their sister companies.
“Over time, people will lose interest in the Terra-LUNA case, with the investigation showing very slow progress,” Kim Hyoung-joong said. Forecast. “What is more important is that the current administration is balancing deregulation with the goal of becoming a G3 country in terms of the digital economy.”
