South Korean financial institutions may bear brunt of new US digital asset control measure

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Last week, the White House unveiled a framework to control virtual currencies and prevent their misuse for money laundering and terrorism. Titled the “Comprehensive Framework for Responsible Development of Digital Asset,” the guide appears to target South Korean banks in a new twist.

The fact sheet’s security strategy advocates for tighter sanctions on criminal activity using digital assets. In particular, the section targets North Korean hackers who were identified in the $200 million hack of Nomad bridge.

From this, South Korean financial institutions might receive the short end of the stick because there are widespread reports of banks receiving up to $6.5 billion of “abnormal foreign exchange.” Local publication Business Korea reported a chunk of these transactions is from North Korea.

South Korean law enforcement agencies are ramping up efforts to track the origins of the transactions. The country’s top banking regulator, the Financial Supervisory Service (FSS), disclosed that it is in collaboration with the Federal Bureau of Investigation (FBI) in identifying and “defining” the remittances.

“The amount may further increase, and completely new facts may be revealed as to who played what roles in the transactions,” said the FSS. “With our inspections yet to be completed, it is still early to mention how responsible the banks are.”

The spillover of North Korean sanctions is one of several challenges plaguing the industry in South Korea. Terra’s implosion rocked the ecosystem in May, with thousands of investors losing funds as the network’s stablecoin de-pegged from the United States dollar.

The FSS swung into action and cracked down on local exchanges to punish erring firms for their roles in the ill-fated crash. Currently, law enforcement agencies in the country have launched a massive manhunt for Terra founder Do Kwon, as investors are opting to approach cautiously.

New regulation for digital assets

Nine federal agencies collaborated for six months to create the new fact sheet with the core objective to “articulate a clear framework for responsible digital asset development and pave the way for further action at home and abroad.”

The new framework comprises seven sections, which include protecting investors, encouraging financial inclusion, exploring the possibilities of a central bank digital currency (CBDC), and combating illicit finance.

Furthermore, the report urged the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to ramp up efforts against “unlawful practices” in the ecosystem. The fact sheet fails to distinguish the jurisdiction between both regulators, one of the main regulatory challenges militating against the industry in the United States.

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