hankyoreh

Kim Yong-beom

A real-name system for cryptocurrency transactions is to be introduced in South Korea as of Jan. 30. With the new system, deposits and withdrawals for cryptocurrency transactions will only possible after opening an account through real-name confirmation procedures at a bank with a cryptocurrency exchange contract. While transactions using existing virtual accounts will not be banned, further deposits will not be allowed. Banks that discover large cryptocurrency transactions such as deposits or withdrawals of 10 million won (US$9,300) or more in a day will also be required to report them to the Korea Financial Intelligence Unit (KoFIU) as suspected money laundering.

According to accounts on Jan. 23 from the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), six banks have completed procedures to establish “real-name confirmation system for withdrawal and deposit account services,” including Shinhan, Nonghyup (NH), Industrial Bank of Korea (IBK), Hana, and Kwangju Bank. The services were created to support the real-name system for cryptocurrency transactions announced by the administration on Dec. 28.

The new measures have been designed so that deposits and withdrawals for cryptocurrency transactions are only allowed when the account holder information confirmed by the bank matches investor information received from the cryptocurrency exchange. Investors are required to open individual accounts at a bank holding a contract with the exchange that they use, and must register the account information with the exchange.

Virtual accounts, which have been the chief means of conducting transactions to date, will still be usable but subject to restrictions. Once the real-name system goes into effect on Jan. 30, additional deposits into the virtual accounts will be prohibited – allowing cryptocurrency transactions only within the range of funds previously deposited into the accounts. Transactions through general corporate accounts, which had been used at small-scale exchanges, will be effectively banned.

Cryptocurrency investors are voicing hopes that the real-name system could lead to a large influx of new funds. Their belief is that is that the new system could result in new investors entering the cryptocurrency transaction market after previously being unable to do so when the administration halted additional issuance of virtual accounts late last year. But it remains to be seen whether the reality will live up to expectations – especially with authorities deploying strong measures to deter new demand with their money laundering prevention guidelines.

Key to the guidelines is the assignment of “comprehensive” responsibility to banks to prevent money laundering. In practice, this means the banks are not to establish real-name deposit and withdrawal service contracts with exchanges showing indications of money laundering activities. If laundering is found to have taken place after services are provided, the bank shares in the responsibility.

From the banks’ standpoint, this potential burden restricts their ability to actively offer such services to exchanges and investors. Of the six banks that have established real name confirmation systems, three of them – Hana, Kwangju, and IBK – do not currently have a contract with any exchange.

The guidelines also state that banks must examine whether exchanges are safely managing funds from investor transactions. The banks are responsible for looking into whether the exchanges are administering transaction details separately for individual investors, accurately ascertaining investor identities, and separately managing exchange assets and investor funds.

Banks will have the right to refuse or halt transactions with exchanges that do not meet the conditions. In combination with the real-name system, the money laundering prevention guidelines are designed to weed out poor-quality exchanges.

The guidelines also target investors. Banks will be required to report cases of possible money laundering by investors to KoFIU as “suspect transactions.” Examples listed in the guidelines included cases where the investor suspected of laundering is corporation or group; cases of deposits or withdrawals of more than 10 million won in a single day or 20 million won (US$18,600) in a single week; and withdrawals or deposits amounting to five or more in a day or seven or more in a week. This means that investors involved in such transactions could find themselves under investigation by KoFIU – or by prosecutors or police – on money laundering charges.

“Whether to provide real-name deposit and withdrawal account services to exchanges and investors is a matter for banks to decide independently,” said FSC vice chairman Kim Yong-beom.

“But banks should only provide [such services] when they are confident they can faithfully uphold their obligation to prevent money laundering,” he added.

“Stern actions will be taken if violations of the law are discovered during ongoing examinations by financial authorities,” he warned.

By Kim Kyung-rak, staff reporter

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