In the wake of the mid-2022 crypto market collapse, South Korea is pursuing digital asset reform initiatives.
According to a press release issued by its financial services commission, the Korean government is considering revised legislation for what would appear to be a new set of regulatory frameworks for digital assets, integrating said sphere of commerce towards its own legal framework. On the outset, these initiatives have the goal of providing better clarity and certainty for the country's businesses, while also protecting investors.
This news comes comes as many crypto businesses have been forced to shut down or scale back operations due to the bear market. Regulatory uncertainty has also made it difficult for crypto firms to obtain banking services, or open credit lines from banks as they navigate their strategies for the bear market.
To date, the South Korean government estimates some 280,000 domestic investors affected solely by the Terra-LUNA collapse, with the crash's broader impact in terms of other crypto investors still unaccounted for.
Estimates from the Korean Financial Services Commission (FSC) show that the country's entire crypto industry is worth roughly $42 billion, with a momentum that has been been largely accumulating since it spiked to popularity sometime in 2018. Recent estimates from the Korea Financial Intelligence Unit (KoFIU) provide that roughly 15 million Korean individuals are categorized as consumers or investors in cryptocurrency or digital assets, representing almost 30% of its current population.
“They believe that [Korea’s] digital finance needs innovation, and reform is a good way for the administration to differentiate itself from the last,” says Korea Society of Fintech Blockchain (KSFB) president Kim Hyoung-joong.
The Korean government's crypto reform initiatives come as the global crypto industry is watching and waiting to see what regulatory actions will be taken in the aftermath of the market crash. South Korea's crypto regulations are currently some of the most stringent in the world, and it remains to be seen how these new initiatives will impact the crypto industry both in the short and long term.
“We will eventually allow domestic financial companies to do anything that global financial companies are doing, [...] the goal is to prepare the ground for domestic players in the global financial market like BTS to emerge." stated Kim Joo-hyun, recently appointed Chairman of the FSC. The chairman is referring to the financial phenomenon behind the cult following of Bangtan Boys, or BTS, a South Korean boy band with a global fanbase.
The rise in interest rates across the financial sector has led to South Koreans becoming increasingly attracted to crypto, despite the known volatility of tokens and digital assets such as NFTs. Kim Joo-hyun says that a possible method to regulate the flow of these new investors is to "induce" their spending momentum into "innovative sectors."
The South Korean government's commitment to reforming their regulatory frameworks for digital assets can be viewed in two ways: on the one hand, it could be reactionary stance to the collapse of Terra-LUNA as led by Do Kwon (Kwon Do-hyung) which has also partially affected the entire crypto industry; or it could also be a progressive initiative based on the idea of innovation.
“Regardless of the investigation, this government seems to believe that digital reform in the financial sector is the way to go," stated KSFB.
Another factor, this time for mass adoption, is the recent statements coming from the Korea Federation of Banks (KFB). The industry association has nudged the FSC into allowing banks to pursue or launch businesses on the crypto space through shifting or extending their suite of financial services to integrate with crypto's features. Current regulatory lines in the country allow banks to acquire up to 20% stake in a non-financial company. Banks are also curtailed in terms of operation or exposure to the workings of crypto firms: the creation of subsidiaries directly or partially involved in the crypto industry is severely limited.
“Banks have stricter internal policies and management in financial regulations, so we anticipate that the banks’ entry [into the crypto market] will contribute to the integrity of the market,” a KFB spokesperson shared.
If the FSC allows for such a reform to happen, current consumer base of the country's banks can easily migrate or consider crypto as a worthy product for their financial needs. Such an action, if implemented, could lead to a massive transition to crypto as a primary method of managing finances for South Koreans.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.