[Veat’s Startup Legal Walk] Virtual Assets and Financial Legislation

For nearly two and a half years, the boom in virtual assets (cryptocurrencies) has been hitting Korea. Numerous internet bulletin boards that had been filled with “Gaza” memes are still eye-catching.

In the IT industry, even at that time, although people had already gained some concept of cryptocurrencies, the legal sector did not. Despite the fact that prices doubled overnight, it was impossible to understand an asset that behaved so erratically, and it was also impossible to put it within the legal framework.

In this situation, the government began to prepare measures to completely withdraw ‘Virtual Mark’ from Korea, which was still causing this bizarre situation.

After two and a half years, what is it like now?

Even in Korea, many discussions took place, and despite being small, there were also results. Even within the fierce demand to recognize virtual assets as an effective asset, there was a difficult first step to acknowledge the financial value of virtual assets.

And soon, the Legal Framework on Reporting and Use of Specific Financial Transaction Information (Specific Financial Transaction Law) was enacted. It provided specific guidelines for businesses engaging in virtual asset businesses.

Most legal framers realized that after the 2018 crypto boom, they first encountered virtual assets, and given the initial negative perception, it was necessary to create this level of regulation.

Nevertheless, there is a virtual asset legal framework that needs to be further developed. This is the legal framework to include virtual assets in the ‘financial’ domain.

Next year’s Specific Financial Transaction Law, despite its name, is difficult to consider as a law that has placed virtual assets in the ‘financial’ domain. The Specific Financial Transaction Law requires virtual asset businesses to ensure customer identity verification and transparent asset management, and to possess an ISMS (Information Security Management System) to manage assets entrusted by customers.

However, it does not include the content that could develop virtual assets as a new field of finance.

Virtual assets are distinguished from other technologies such as artificial intelligence and augmented reality in that they have pioneered a new financial domain that did not previously exist. The United States has been focusing on regulatory efforts to regulate virtual assets as one area of finance by way of the Securities and Exchange Commission (SEC).

Should there be predictability in regulation?

It is not easy to create a regulatory framework that harmonizes with traditional financial law, especially given the situation where no one had previously known about this new concept. Particularly given the situation where the whole nation was swept up in investment mania in 2018, it is even more necessary.

After two and a half years since ‘Gaza’ frenzy, it is now time for Korea to allow virtual assets to grow as one branch of a new finance.

Of course, it is not about allowing unlimited virtual asset finance. However, like the SEC, it is necessary to publish the criteria for determining whether it is a regulatory target, and to apply it uniformly to the entire financial law if it is a target of regulation. We expect the formation of this legal framework.

‘Predictability in regulation’ will open an opportunity for Korean virtual asset companies to lead the new financial markets that are coming.