[Square] Cryptocurrency Regulation, We Must Change the Paradigm

Recently, the head of the financial authorities sparked controversy by stating that "virtual asset trading is not an investment but a wrong path, and adults should teach this." At a time when the anger of people in their 20s and 30s, who have put all their money into virtual asset investments after the path to real estate investment was blocked due to rising real estate prices, needs to be soothed, such remarks treating them like children only poured fuel on their anger. Considering the excessively volatile and chaotic reality, such as the incomprehensible rapid rise of unknown coins and coin scams through multi-level organizations, the concerns of the head of the financial authorities are somewhat understandable.

Where did the market confusion begin? Unfortunately, the government appears not to be free from responsibility for the current chaotic market situation. Our government had a golden opportunity four years ago to establish proper regulations for the virtual currency market and prevent market confusion. As virtual currency prices soared to unprecedented heights, a virtual currency investment craze ensued, and instead of establishing proper regulations, the government missed the chance by taking a stance that practically did not recognize virtual currencies, including the Minister of Justice’s remarks about closing exchanges. Without appropriate regulations for the virtual currency market, and by effectively denying its existence or insisting on indirect control of exchanges through banks, South Korea’s virtual currency market became more underground. The market became chaotic, and virtual currency investors were left unprotected.

Meanwhile, the FATF, an international organization for anti-money laundering, recommended the introduction of anti-money laundering regulations for virtual assets, leading South Korea to amend the Act on Reporting and Using Specified Financial Transaction Information (the Special Financial Transactions Information Act, or "특금법") and implement a registration system for virtual currency operators. This was another golden opportunity to introduce proper regulations and investor protection measures for virtual assets and operators, but the government maintains that the Special Financial Transactions Information Act was introduced only to implement anti-money laundering regulations for virtual currencies in accordance with FATF recommendations, not to institutionalize virtual currencies.

While South Korea has not moved forward beyond enacting the Special Financial Transactions Information Act due to fear of speculation, many countries around the world are introducing the next stage of regulations to prepare for the future beyond basic regulations on virtual currencies. Specifically, they are introducing full-fledged regulations on virtual currencies with securities characteristics (security tokens) and platforms that can trade them. Neighboring countries such as Singapore and Hong Kong have begun applying securities laws to platforms handling security tokens and granting licenses to qualified platform operators. Even Japan, which has a legal system similar to ours, has established an institutional foundation to treat security tokens as securities through amendments to the Financial Instruments and Exchange Act.

What do these movements by neighboring countries signify? If the regulations they are currently implementing lead to security tokens being actively traded on exchanges, it means that all existing forms of assets?real estate, movable property, securities?can be virtualized and traded as virtual assets through security tokens. This implies the securitization and tokenization of all existing assets. The gap between our neighboring countries, which have taken the lead in the new digital asset market, and us is very likely to remain wide for decades to come.

In the 19th century, Korea’s future was to endure invasion and occupation by neighboring countries after choosing isolationism and rejecting change during the opening of ports. While developing countries are held back by past and present realities and fears, unable to move forward, advanced countries differ in that they look to the future and establish systems first to regulate and control the uncertain present. Now that South Korea has risen to the ranks of advanced countries, I sincerely hope that through a paradigm shift in regulation, we can wisely prepare for the future digital asset era.

Cho Jeong-hee, Attorney at Law, Sejong Law Firm