According to local sources including JoongAng, South Korea’s largest business and finance news publication, the South Korean Financial Services Commision (FSC) and other financial regulators will ban “any forms” of domestic initial coin offerings (ICOs) and bitcoin margin trading.
SOUTH KOREA IS BANNING ICOS, TASK FORCE CREATED
Earlier this month, the FSC revealed that it will crackdown on ICOs offering securities to investors within South Korea. At the time, the South Korean government and its central bank expressed their concerns over potential frauds involving cryptocurrencies.
But, on September 29, the FSC and its vice chairman Kim Yong-bum announced that it will prohibit all forms of ICOs, regardless of the legitimacy of projects and technologies. FSC vice chairman Kim also revealed the launch of a cryptocurrency focused task force that will investigate into ICOs and blockchain projects within the South Korean cryptocurrency market.
As of current, China and South Korea are the only countries to ban ICOs and crowd sales of crypto-tokens. While regulations for ICOs in the US market still remain unclear, the US Securities and Exchange Commission stated that ICOs which are “clearly not securities” will not be prohibited. For instance, Gil Penchina, a partner at IDG Ventures and Flight.vc, noted that ICOs of Civic, FIlecoin, and Gnosis are not considered a securities but rather as credit for future usage, which technically is closer to pre-paid gift cards.
“Protocol-level tokens (Bitcoin, Ethereum, etc.) do not have any assets of any kind underlying them and remain far from the SEC’s current focus. Apps that give you a credit for future usage (Filecoin, Civic, Gnosis, etc.) are in my opinion still effectively pre-paid gift cards like an Amazon gift card, and are not covered by the SEC. I have no proof of this but the analogy is amazingly sound. Apps that “sell future income streams” now have two examples of SEC scrutiny, and I would expect more.”
Hence, JoongAng emphasized that China and South Korea remains as the only two regions that have imposed a strict ban against ICOs and any forms of token crowd sales.
In an interview with JoongAng, Kim Jin-hwa, the co-founder of Korbit, South Korea’s third largest cryptocurrency trading platform that was recently acquired by Nexon at a $140 million valuation, stated that a nationwide ban on ICOs will restrict innovation and development of the South Korean blockchain space. Another cryptocurrency expert told JoongAng that the blockchain industry of South Korea will lag behind competing regions such as Japan.
However, whether South Korean investors can participate in foreign ICOs or not remains unclear. JoongAng reported that the government will not restrict investments into ICO campaigns conducted by companies or organizations outside of South Korea.
BITCOIN MARGIN TRADING TO BE BANNED, TIGHTENED KYC / AML POLICIES
The FSC will also impose a ban on bitcoin margin trading and tighter Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. One of the newly released regulations will allow South Korean users to only launch one account per individual.
But, the South Korean government is taking a fundamentally different approach towards regulating the bitcoin exchange market in contrast to China. It aims to foster the cryptocurrency exchange market and provide a more robust ecosystem for investors. Already, the Fair Trade Commission is actively investigating into unfair terms and conditions, including withdrawal restrictions.