The Korea Financial Services Commission (FSC) introduced new rules to further detail the anti-money laundering (AML) requirements on virtual assets under the revised Act on Reporting and Using Specified Financial Transaction Information, which went into effect on March 25, 2021.
The Act defines “Virtual Asset Service Providers (VASPs)” as business entities which engage in one or more of the following activities or operations:
- purchase and sales of virtual assets;
- exchanges between virtual assets;
- transfer of virtual assets;
- safekeeping and administration of virtual assets;
- intermediation or brokerages of virtual asset transactions; exchange of virtual assets; and
- other activities specified by the enforcement decree.
Practically, this means that VASPs are…
- virtual asset trading service providers,
- virtual asset safekeeping and administration service providers and
- virtual asset digital wallet service providers.
A VASP is allowed to serve as a broker between its own customer and another VASP’s client only if the other party is a qualified AML compliant VASP and that verifying information on the other party’s client is possible.
Beginning on March 25, 2021, the registered VASPs are subject to anti-money laundering (AML) requirements, such as duties to verify identities of customers, file reports on suspicious transactions, etc.
There are two key deadlines associated with the act:
- VASPs are required to register their business with the Korea Financial Intelligence Unit (KoFIU) prior to the commencement of their business operation. Existing businesses that qualify as VASPs should register within six months (until September 24, 2021) or they will be subject to penalties.
- The Act applies the so-called ‘travel rule’ to VASPs in transactions of VA transfer. Under the travel rule, the originating VASP is required to provide the beneficiary with information about VA transfer. The enforcement decree stipulates that the travel rule will apply starting from March 25, 2022, to give VASPs enough time to introduce common solutions for information sharing. Under the enforcement decree, a VA transfer transaction which amounts to more than KRW1 million would become subject to the travel rule.
The Act mandates that VASPs use real-name in their financial transactions with customers.
The enforcement decree prescribes additional requirements for VASPs to open real-name accounts with financial institutions (FIs):
- separation of customers’ deposit;
- a certificate of Information Security Management System by KISA;
- no record of fines and other penalties at least within 5 years;
- separate management of customers’ transaction records;
- assessment of money laundering risks associated with VASPs by FIs.
VASPs whose service activities entail no exchange of virtual assets with fiat money are exempted from the real-name account rule that requires them to maintain real-name accounts with financial institutions.
As of the end of May, the FSC states that of the about sixty VASPs in operation, twenty entities have received ISMS certifications and four them are found to run their operation with real-name accounts.
While other sources speak of more than 200 cryptocurrency exchanges in Korea, the FSC focuses only on those with fiat on- and off-ramps, thus explaining the lower number. The four already accepted to operate with financial institution bank accounts are the dominant Bithumb, Upbit, Korbit and Coinone. Various reports state difficulties of smaller players to comply with this requirements, thus a severe consolidation of this sector in Korea is expected (and intended).
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