A bill that aims to regulate digital currencies in South Korea has passed the first phase of regulatory review by the country’s National Assembly, prompting speculation that it could receive presidential assent before the end of the year.
The bill moved past the first legislative hurdle on April 25 after members of the National Assembly voted in its favor. The proposed law seeks to confirm the country’s Financial Services Commission (FSC) as the chief regulator for the burgeoning digital currency ecosystem.
Digital asset providers in South Korea will be required to apply for operational licenses from the FSC, according to the provisions of the bill. As the main regulatory agency, service providers are urged to make regular disclosures to the FSC, including information concerning black swan events such as freezing user withdrawals.
The bill goes on to criminalize the false promotion of digital currencies and price manipulation with penalties of jail time or payment of fines. Individuals found guilty of causing investors losses exceeding KRW 5 billion ($3.7 million) stemming from their non-compliance with the proposed rule face between five years to life imprisonment.
“As both the ruling and opposition parties have agreed on the matter, the legislation will likely become law within the first half of the year,” Member of Parliament Hwang Suk-jin said. “[The bill] will play an important role in establishing market order as it develops the basic law to block unfair trade acts.”
The next hurdle the bill faces is scrutiny from the Legislation and Judiciary Committee to gauge its compliance with existing laws and the country’s constitution. It remains unclear when the next plenary session will be held as the dates are yet to be fixed.
Efforts to pass efficient legislation to guide the digital currency industry in South Korea have been heightened following the collapse of Terra’s ecosystem in May 2022, wiping away billions of investors’ funds.
Power tussle with the central bank
In the scramble for proper regulations, there appears to be a brewing power struggle between the Bank of Korea (BoK) and the FSC. However, a proposed legislative amendment may see both entities share regulatory powers as the BoK is set to have the right to probe digital currency service providers in the country.
Sources claim that the FSC is against the move on the grounds that BoK’s involvement would confer monetary value to digital assets. On the other hand, the BoK argued that since stablecoins operate as currencies, it is well within its constitutional rights to supervise the activities of issuers.
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