[Exclusive] Jeongmuwi Specialist Office: "Must Crack Down on Fraudulent Investment Advisory Services from Group Chats and YouTube" [The Swamp of Fraudulent Coins]

[Report on 316 Victims of Fraudulent Coins] Fraudulent Coin Prevention Law Passed to the National Assembly
National Assembly Judiciary Committee Expert Office
"Must Prevent Cryptocurrency Investment Advice to Indiscriminate Masses via SNS"
Recommendation for Ministry of Science and ICT and Ministry of Industry to Participate in Coin Issuer Screening

[Asia Economy Reporters Koo Chae-eun, Gong Byung-sun] The National Assembly's Standing Committee on Political Affairs' expert office released a 'Virtual Asset Bill Review Report' stating the need for regulation and crackdown on fraudulent coin investment advisory business practices spread through social network services (SNS) such as open chat rooms and YouTube.

It pointed out that none of the four currently proposed bills (by lawmakers Lee Yong-woo, Kim Byung-wook, Yang Kyung-sook, and Kang Min-guk) include SNS-related content, and suggested that since fraudulent coin investment advisory practices via group chat rooms are widespread, they should be included in the regulations. The senior expert's review report serves as a de facto 'guideline' during the Bill Subcommittee 1's deliberation process, and related regulations are expected to be added during the future bill consolidation review.

◆Need to Block SNS Fraudulent Coin Investment Advisory = The 'Virtual Asset Related Bill Review Report' by Lee Yong-jun, senior expert of the National Assembly's Political Affairs Committee, obtained by Asia Economy on the 12th, explained, "Although the four bills do not contain related regulatory content, recently there have been business practices providing virtual currency investment advisory services to unspecified many through SNS such as open KakaoTalk chats and YouTube, collecting usage fees," and added, "Regulatory measures on this may also be discussed if necessary."

In fact, in an in-depth survey conducted by this outlet from June 1 to 15 on 316 victims of virtual currency fraud, more than half of the victims, 74.1% (237 people), answered that they received coin-related investment information through 'group chat rooms, YouTube, portals,' etc. Many victims of fraudulent coin scams received investment advice or were coerced or threatened through group open chat rooms where coin scam masterminds, recruiters, and middle managers were present. The review report stated, "There are advertisements claiming to provide coin information expected to rise in price to paid members via SNS or YouTube," but added, "(However) under the Capital Markets Act, quasi-investment advisory business applies only to investment advice on financial investment products. Such (illegal) services related to virtual assets are in a regulatory blind spot. Regulation is necessary."

From the community of 12 cryptocurrency scam victims, a survey was conducted on 316 individuals from the 1st to the 15th of last month (assuming random sampling from an infinite population, the margin of error is ±5.5 percentage points at a 95% confidence level).

◆Ministry of Science and ICT and Ministry of Industry Should Also Participate in Coin Issuance Review = Furthermore, it suggested that not only the Financial Services Commission but also the Ministry of Industry and the Ministry of Science and ICT, which have high technical understanding, should participate in the review of coin issuing companies. This is a supplementary measure following the three bills (by lawmakers Kim Byung-wook, Yang Kyung-sook, Kang Min-guk) that stipulate reporting, approval, and registration of coin issuing companies to the Financial Services Commission. The review report said, "It will not be easy for the Financial Services Commission to conduct the review alone," and added, "To examine whether coin development has been properly carried out from a technical perspective, it is necessary for the Ministry of Science and ICT and the Ministry of Industry, which have high industrial understanding, to participate."

Regarding the 'storage of more than 70% of virtual assets in cold wallets' proposed by lawmakers Lee Yong-woo and Yang Kyung-sook to prevent exit scams and withdrawal bans, the report noted, "While it provides stability, it makes rapid deposit and withdrawal responses difficult, so discussion on the appropriate ratio and scale is necessary." It also advised, "There should be discussions on whether it is necessary to establish or designate a separate deposit institution where users' virtual currencies can be safely deposited."

◆Guidelines for Damage Prevention Should Be Presented = Regarding the damage compensation provisions stipulated in the three bills (by lawmakers Lee Yong-woo, Kim Byung-wook, Yang Kyung-sook), the report said, "Specifying liability for damages in the law would enhance transparency and safety," but added, "Guidelines to judge whether the 'duty of care to prevent damage' has been fulfilled should be presented first." It also highlighted the extraterritorial clause included in Kim Byung-wook's bill (applying domestic law to legal issues occurring outside the country's territory), emphasizing, "Since price manipulation and other unfair acts caused by overseas factors can cause damage, international cooperation and coordination are prerequisites for effective sanctions against unfair acts."

The report also pointed out that compared to the stock market, virtual currency lacks personnel and organizations to monitor unfair acts such as price manipulation. In the capital market, there are organizations composed of 150 people at the Korea Exchange, 28 at the Capital Market Investigation Team, and 80 at the Financial Supervisory Service, but such personnel and systems are absent in virtual currency. The report stated, "Considering this, Kim Byung-wook's bill imposes an obligation on virtual asset traders to continuously perform market surveillance duties, but unlike exchanges that perform monopolistic tasks in securities market trading, private exchanges require considerable personnel, facilities, costs, and time to conduct individual surveillance tasks."

Meanwhile, the four virtual currency-related bills (by lawmakers Lee Yong-woo, Kim Byung-wook, Yang Kyung-sook, Kang Min-guk) were submitted to the plenary session on the 13th and referred to Bill Subcommittee 1, where full-scale bill review will proceed this month. It is expected that the senior expert's review report opinions will be substantially reflected during the Bill Subcommittee 1 deliberation process. Given that both ruling and opposition parties are currently establishing internal virtual asset task forces (TF), there is a high possibility of broad consensus on the necessity of the bills.