Attributable to their anonymity or pseudonymity, digital belongings are perceived as entailing the dangers of cash laundering and financing terrorism. In October 2018, the Monetary Motion Activity Pressure (FATF) adopted modifications to its suggestions 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 strategy to VA actions or operations and VASPs. This new strategy consists of the supervision of VASPs to make sure compliance within the areas of licensing and registration and preventive measures resembling buyer due diligence, transaction reporting and record-keeping. It additionally consists of 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, subsequently, have the identical full set of obligations as monetary establishments.
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VASP regulation in South Korea
Consistent with the steering issued by the FATF recommending a risk-based strategy towards the regulation of digital belongings and VASPs, Korea’s Anti-Cash Laundering-related regulation, the Act on Reporting and Utilizing Specified Monetary Transaction Data, was not too long ago amended and went into impact on March 25, 2021. Below 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 shall be topic to numerous AML obligations, resembling verifying the identification of their prospects and submitting studies 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.
Below 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 can be engaged within the buy/sale, trade 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 outdoors South Korea that has home results or penalties shall be topic to the act. Accordingly, the KoFIU has despatched out notices to 27 offshore VASPs with enterprise operations “focusing on customers in Korea” relating to their obligation to register with the KoFIU by Sept. 24. Whether or not the enterprise operations of non-Korean VASPs are thought to be “focusing on customers in Korea” is more likely to be a fact-specific willpower primarily based on elements resembling whether or not they present Korean-language translation service on their platforms, whether or not they carry out promoting and advertising actions focusing on Koreans, and whether or not they present transactions and cost providers within the Korean received.
What’s notable is that offshore VASPs that haven’t acquired 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 can be topic to the registration requirement fail to register with the KoFIU, their operation shall be thought to be unlawful enterprise actions efficient Sept. 25. The KoFIU introduced that it could take motion, resembling 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, trade operators shall be topic to as much as 5 years of imprisonment or a most positive of roughly $43,500, as prescribed by the act. The KoFIU acknowledged that they might additionally file prices with investigative authorities, together with prosecutors and the police, in opposition to unregistered offshore VASPs and actively search different methods, resembling 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 might not be capable of withdraw their funds or digital belongings. Therefore, customers are suggested to verify the enterprise registration standing of the related VASPs (that concentrate on customers in Korea), request details about their resident registration numbers and take proactive actions, resembling withdrawal of their funds or digital belongings, if obligatory, to stop any doable damages.
What international VASPs ought to think about
Then, what necessities ought to VASPs meet once they register with the KoFIU? Amongst different necessities, they should acquire an Data Safety Administration Programs (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 except the VASPs don’t obtain cash from their customers and there’s no trade 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 introduced on July 28 the results of complete inspections carried out 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 studies, the KoFIU will relay any circumstances related 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 think about whether or not they fall throughout the scope of the offshore VASPs topic to the registration requirement beneath the amended act (i.e., whether or not they might be deemed to be focusing on customers in Korea) by checking their present advertising 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, think about their enterprise construction and verify the necessities for registration with the KoFIU.
This text doesn’t include funding recommendation or suggestions. Each funding and buying and selling transfer entails danger, and readers ought to conduct their very own analysis when making a choice. The views, ideas and opinions expressed listed below are the creator’s alone and don’t essentially replicate or characterize the views and opinions of Cointelegraph.
Chloe Lee is a lawyer certified to follow regulation in Korea. She is a associate on the Banking and Finance Group and Digital Finance Staff of Lee & Ko, considered one of Korea’s premier regulation companies, with over 780 professionals. Chloe graduated from Seoul Nationwide College College of Regulation and earned an LL.M. in regulation and expertise at UC Berkeley College of Regulation.