As a consequence of their anonymity or pseudonymity, digital belongings are perceived as entailing the dangers of cash laundering and financing terrorism. In October 2018, the Monetary Motion Process Power (FATF) adopted changes to its recommendations on monetary actions involving digital belongings, including the definitions “digital asset” (VA) and “digital asset service supplier” (VASP).
Since then, the FATF has adopted a risk-based method to VA actions or operations and VASPs. This new method contains the supervision of VASPs to make sure compliance within the areas of licensing and registration and preventive measures akin to buyer due diligence, transaction reporting and record-keeping. It additionally contains monitoring VASPs to fight cash laundering and the financing of terrorism. Doing so enhances the effectiveness of sanctions and different enforcement measures, in addition to worldwide cooperation. VASPs, due to this fact, have the identical full set of obligations as monetary establishments.
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VASP regulation in South Korea
In step with the steering issued by the FATF recommending a risk-based method towards the regulation of digital belongings and VASPs, Korea’s Anti-Cash Laundering-related regulation, the Act on Reporting and Utilizing Specified Monetary Transaction Info, was not too long ago amended and went into impact on March 25, 2021. Beneath the amended act, VASPs are required to register their enterprise with the Korea Monetary Intelligence Unit (KoFIU) previous to the graduation of their enterprise operations, and present companies that qualify as VASPs are required to finish such registration inside six months — i.e., by Sept. 24, 2021.
Additionally, upon registration, VASPs can be topic to varied AML obligations, akin to verifying the identification of their clients and submitting reviews on suspicious transactions. The monetary authorities will conduct inspections of VASPs and supervise their compliance with AML obligations from the time of their enterprise registration.
Beneath the act, VASPs are outlined as digital asset buying and selling service suppliers, digital asset safekeeping and administration service suppliers and digital asset digital pockets service suppliers which are engaged within the buy/sale, change or switch, or safekeeping/administration of digital belongings, or intermediation and brokerage of some digital asset transactions.
Korea Monetary Intelligence Unit
The amended act additionally offers that any offshore exercise exterior South Korea that has home results or penalties shall be topic to the act. Accordingly, the KoFIU has sent out notices to 27 offshore VASPs with enterprise operations “focusing on customers in Korea” concerning their obligation to register with the KoFIU by Sept. 24. Whether or not the enterprise operations of non-Korean VASPs are considered “focusing on customers in Korea” is more likely to be a fact-specific dedication based mostly on elements akin to whether or not they present Korean-language translation service on their platforms, whether or not they carry out promoting and advertising and marketing actions focusing on Koreans, and whether or not they present transactions and cost providers within the Korean gained.
What’s notable is that offshore VASPs that haven’t obtained any discover from the KoFIU however have enterprise operations focusing on customers in Korea are additionally required to register with the KoFIU or in any other case droop their enterprise operations focusing on customers in Korea beginning Sept. 25.
If the offshore VASPs which are topic to the registration requirement fail to register with the KoFIU, their operation can be considered unlawful enterprise actions efficient Sept. 25. The KoFIU introduced that it might take motion, akin to blocking entry to such VASPs’ web sites, and people VASPs shall stop their enterprise operations focusing on customers in Korea efficient Sept. 25.
In the event that they proceed to function their enterprise with out registering, change operators can be topic to as much as 5 years of imprisonment or a most fantastic of roughly $43,500, as prescribed by the act. The KoFIU said that they’d additionally file prices with investigative authorities, together with prosecutors and the police, in opposition to unregistered offshore VASPs and actively search different methods, akin to shut cooperation with non-domestic monetary intelligence models and worldwide judicial mutual help, in prison issues.
On this case, there’s a risk that customers will incur damages by utilizing providers offered by unregistered VASPs as a result of they could not have the ability to withdraw their funds or digital belongings. Therefore, customers are suggested to test the enterprise registration standing of the related VASPs (that focus on customers in Korea), request details about their resident registration numbers and take proactive actions, akin to withdrawal of their funds or digital belongings, if vital, to stop any doable damages.
South Korea’s Monetary Providers Fee
Then, what necessities ought to VASPs meet after they register with the KoFIU? Amongst different necessities, they should receive an Info Safety Administration Techniques (ISMS) certification from the Korea Web and Safety Company (KISA), and they need to additionally use real-name accounts opened at a financial institution for cash remittance between the VASPs and their customers until the VASPs don’t obtain cash from their customers and there’s no change of cash for digital belongings. As of July 22, the Monetary Providers Fee — the monetary authority in Korea — has confirmed that no offshore VASPs have, as but, obtained an ISMS certification.
Individually, the FSC announced on July 28 the results of complete inspections performed on the legitimacy of deposit accounts held by VASPs. As of the tip of June, it was discovered that 79 VASPs had 94 deposit accounts, 14 of which have been discovered to be linked to fraudulent or fictitious account actions. Monetary establishments are anticipated to droop the accounts linked to fraudulent or fictitious actions.
Making use of the suspicious transaction reviews, the KoFIU will relay any instances linked to cash laundering or different illicit actions to the suitable regulation enforcement companies. The FSC additionally stated that monetary authorities will proceed to intently monitor deposit accounts held by VASPs till the registration deadline of Sept. 24.
Offshore VASPs ought to contemplate whether or not they fall inside the scope of the offshore VASPs topic to the registration requirement below the amended act (i.e., whether or not they could be deemed to be focusing on customers in Korea) by checking their present advertising and marketing and distribution channels, settlement currencies and translation service, and so forth. Additionally, offshore VASPs that intend to actively market their service to customers in Korea after Sept. 24 ought to, amongst different issues, contemplate their enterprise construction and test the necessities for registration with the KoFIU.
This text doesn’t comprise funding recommendation or suggestions. Each funding and buying and selling transfer includes threat, and readers ought to conduct their very own analysis when making a call. The views, ideas and opinions expressed listed below are the writer’s alone and don’t essentially mirror or signify the views and opinions of Cointelegraph.
Chloe Lee is a lawyer certified to observe regulation in Korea. She is a associate on the Banking and Finance Group and Digital Finance Staff of Lee & Ko, one in all Korea’s premier regulation corporations, with over 780 professionals. Chloe graduated from Seoul Nationwide College Faculty of Regulation and earned an LL.M. in regulation and expertise at UC Berkeley Faculty of Regulation.