On March 10th, candidate Yoon Suk-yeol of People’s Party was elected as South Korea’s 20th president claiming 48.56% of overall vote. In this article, Cha&Kwon Law Offices will organize president-elect Yoon’s pledges related to virtual asset industry. It is expected that Yoon will take strict measures on illegal practices while encouraging the development of virtual asset industry.
What Pledges Should Individual Investors Consider?
To ensure the protection of individual investors, president-elect Yoon pledged to enact the ‘Framework Act of Virtual Asset Industry,’ of which the regulation to (1) confiscate profits gained from unfair coin bargains is gaining attention. As the number of illegal pyramid selling/fraud cases is increasing, this regulation is expected to eradicate such illegal practices and protect the rights of individual investors. Moreover, in order to prevent and relieve the damages from systemic errors and hackings, Yoon announced that he will (2) expand the introduction of relevant insurance system.
Yoon also pledged to exempt taxation on coin profits up to 50 million Won. At the People Party press conference held on January 19th, 2022, president-elect Yoon announced, “to ensure that young people also invest in the new market without fear, developing a safe investing environment similar to that of the stock market is necessary and strict measures will be taken for practices that disturb the market system.” Yoon announced to (1) raise the basic deduction on transfer income made from coins to 50 million Won like stocks. (The current basic deduction regulation is 2.5 million Won) Yoon also announced his (2) “renovation first, taxation afterwards” policy, stating “taxation commencement date should be on hold and establishing the transaction infrastructures and regulations on virtual asset industry should come first.” Hence, he suggested additional delay on the starting date of virtual asset profit taxation which is already postponed to January 2023 as of now.
What Pledges Should Virtual Asset Business Operators Should Consider?
With the virtual asset industry already active, President-elect Yoon have announced that instead of suppressing the market, clear transaction regulations should be made to enable safe practices. He aims to construct relevant infrastructures by (1) establishing Digital Industry Development Administration and (2) introducing virtual asset specialized banks and also aims to promote the digital asset industry by (1) allowing domestic ICOs and (4) vitalizing NFTs.
1. Establishment of Digital Industry Development Administration
Because the Financial Services Commission (FSC) is currently in charge of managing the virtual asset industry, virtual asset businesses are raising complaints that there is a lack of proposals for revitalizing the digital industry. Yoon have announced that the government must “establish cooperation system between the relevant institutions and quickly develop the groundworks of the new digital virtual asset industry.” In order to promote and regulate the virtual asset industry on a separate level, Yoon has pledged to establish “Digital Industry Development Administration.”
2. Introduction of Virtual Asset Specialized Banks
Currently, exchanges must have real-name verification accounts issued from banks to receive KRW exchange authorization. However, because the FSC holds banks accountable for any money laundering cases that might occur, banks are being reluctant to issue exchanges real-name verification accounts. Hence, the current KRW market is mainly operated by the top 4 exchanges (Upbit, Bithumb, Coinone, Korbit) that managed to have real-name verification accounts issued from banks. President-elect Yoon pointed out that “if exchanges fail to pass KRW exchange examination, they do not receive any second chances” and suggested introducing virtual asset specialized banks. If actualized, this pledge will prevent monopoly/oligopoly of the market by increasing the number of KRW exchanges and will diversify the coin transaction market. However, because amendments need to be made on the Act on Reporting and Using Specified Financial Transaction Information to provide legal grounds of this pledge, we should keep an eye on its progress.
3. Allowing Domestic ICOs
President-elect Yoon made an announcement that starting with IEOs (Initial Exchange Offering), he will introduce ICOs (Initial Coin Offering) in stages. In 2017, the FSC have prohibited all forms of ICOs for the reason that the virtual asset publication authorities could take unfair advantage in the process. Concerned that damage may occur for investors if ICO is fully introduced, Yoon has pledged to allow IEOs for the time being.
Unlike ICOs, a direct investing method by transferring Ethereum directly to a cryptocurrency project, IEO allows investors to invest in cryptocurrency projects indirectly through exchanges. Compared to ICOs that carry the risk of personal information leakage and information asymmetry, investors are relatively safer in IEOs because exchanges are responsible for the process. Yoon may allow IEOs for some registered VASPs that satisfy certain requirements.
However, unlike IPOs where the host and the exchange are separated, exchanges monopolize most of the rights and information in IEOs. This increases the possibility for problems such as information asymmetry, conflict of interests, or monopoly/oligopoly. For a safer IEOs to take place, a separate, independent institution specialized in assisting the listing process should be made and exchanges should only be responsible for listing examination and mediation.
4. Promoting the Digital Virtual Asset Industry by Vitalizing NFTs
President-elect Yoon promised to “support the technical developments and make pre-emptive institutional renovations in preparation for the appearance of diverse forms of new digital assets.” At least for the digital asset industry, Yoon emphasized that he will “switch to negative regulation system so that the public will be free from regulations when displaying their creativity and competence.” It is expected that Yoon will provide institutional groundworks by including NFTs under the scope of ‘digital assets’ under the Act on Virtual Asset Industry. While only the businesses that were allowed could operate under the current ‘positive’ regulations, switching to ‘negative’ regulations by allowing all businesses except for the ones prohibited by law can grow the digital asset industry to another level.
From the announced pledges so far, president-elect Yoon seems to provide investor-and-business-oriented policies and improvements more focused on promoting the virtual asset industry. However, some pledges may face obstacles to be actualized as amendments are required or must receive the assembly’s approval. Thus, close interest should be maintained on the process of pledge fulfillment and appropriate responses are needed.
