Korea's SFC Chair Nominee Intends to Maintain Go-Slow Approach to Crypto

The nominee for the chairmanship of Korea's top financial regulator on Monday indicated that he would maintain the current policy and policy direction in terms of cryptocurrencies and crypto exchanges.

Eun Sung-soo's comments, which were delivered in written form to a parliamentary committee ahead of his Thursday confirmation hearing for the top post at the Financial Services Commission (FSC), suggest that uncertainty will remain and that most activity will continue for some time in legal and regulatory gray areas.

His comments were carried in a variety of local publications, including the Chosun Ilbo.

Eun wrote that laws related to cryptocurrencies, which have been languishing in the National Assembly, need to be passed as soon as possible. These include amendments to the Specific Financial Information Act, which focus on reporting, transparency and anti-money laundering.

At the same time, the nominee alluded to the speculative fever peaking in January 2018, specifically referencing the Kimchi Premium, and noted the risks potentially caused by cryptocurrencies. He expressed skepticism about the integration of coins into the existing financial system and cautioned that the legal foundation should be well established first.

"Incorporating virtual currency into institutional finance may cause side effects such as recurring speculative fever and money laundering issues," the IT Chosun Ilbo quoted him as writing.

The local press interpreted the few and vague comments from the nominee as pointing toward a continuation of the policies and the maintenance of the stance of the Choi Jong-ku, the outgoing chairman. Choi was behind the ban on initial coin offerings (ICO), though he was also in favor of crypto exchanges holding bank accounts under certain strict conditions.

This half-in, half-out, go-slowly framework has put the industry in a difficult position, with only four exchanges having proper access to the banking system and most of the rest operating using untenable workarounds involving corporate accounts. While not strictly illegal, the loophole is against the spirit of the regulations and could be closed at any moment, putting an estimated 97 percent of the exchanges out of business.

The current regulatory environment has also driven many crypto projects outside the country and led to an active black market in offshore crypto within Korea.

Eun Sung-soo image via South Korean Department of Finance