Upbit executive: Establishing crypto regulations hinges on building trust

Binance’s Entry Followed by Increased Scrutiny on Foreign Executives in Korean Crypto FirmsSince Binance’s acquisition of South Korean crypto exchange GOPAX earlier this year, it appears that South Korean financial authorities have tightened their oversight of virtual asset service providers (VASPs), according to an article by local news outlet News1.Photo by Vadim Artyukhin on UnsplashAuthorities had previously instructed existing VASPs to report any changes in their location or registered executives. However, according to industry sources on Monday, authorities recently issued a notice to VASPs, emphasizing the importance of reporting the appointment of foreign executives as well. This change in authorities’ approach is not unrelated to the recent incidents involving Binance and GOPAX, which have caused ripples in the Korean market.Ongoing leadership changesBinance acquired a majority stake in Streami, the operator of GOPAX, back in February after GOPAX struggled to make principal and interest payments on its own decentralized finance (DeFi) service, GOFi, in the wake of the FTX collapse that happened in November 2022. In doing so, Binance injected capital into GOPAX in order to provide a solution for the issue.This marked Binance’s entry into the Korean market, with the number of monthly active users in the country soaring since then. A survey conducted in June by blockchain-based polling app Cratos also revealed that the Korean public had an overall favorable opinion towards the acquisition.Following the acquisition, Streami underwent multiple leadership transitions with Lee Jun-haeng resigning and Binance’s Asia Pacific Head, Leon Sing Foong, taking over. Shortly after, Foong also stepped down, and the baton was passed to Lee Joong-hoon, GOPAX’s former Vice President. It is also notable that Foong recently left Binance altogether amid regulatory scrutiny.Streami subsequently submitted reports to the Financial Intelligence Unit (FIU) under the Financial Services Commission in line with requirements to inform the regulatory body about these changes. However, the FIU has not yet granted its approval, likely due to the legal challenges Binance is currently facing in multiple jurisdictions worldwide.In a seeming effort to address this regulatory roadblock, Streami has recently decided to delegate yet another CEO whose identity has not yet been disclosed. This marks the third leadership shift in just half a year.On the other hand, crypto trading platform Crypto.com also acquired the exchange OKBIT last year. However, its process of entering the Korean market was quite different from that of Binance, as the platform received proper approval for changes in executive positions, such as the appointment of Rafael de Marco e Melo as Chief Financial Officer.Mounting roadblocksIt appears that authorities have now decided to form a more robust oversight system, including monitoring changes in foreign executive appointments at VASPs. However, some argue that such regulatory changes could be perceived as a hindrance for global exchanges looking to enter Korea’s lucrative crypto market where there is a high level of investor sentiment from up to seven million individual investors.To operate as a virtual asset business in the country, businesses must obtain preliminary certification for an Information Security Management System (ISMS) and register as a VASP. Obtaining ISMS certification is a time-consuming process, prompting overseas VASPs to enter the Korean market by acquiring businesses that have already received certification in Korea.However, if the entry barriers to Korea increase as authorities start to scrutinize changes in foreign executive positions, global VASPs may reconsider entering the market.

South Korea is ramping up its scrutiny on cryptocurrency exchanges, with the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) announcing its intention yesterday to remove platforms that lack the necessary qualifications, according to the Korea Economic Daily.Unqualified exchangesIn its announcement yesterday, the FIU revealed its aim to block unqualified virtual asset service providers (VASPs) from facilitating trades in Korean won, the currency of the country. Those currently providing Korean won trading services will be eliminated from the market unless they can demonstrate they meet the required standards. With many exchanges set to renew their registrations in the latter half of this year, the FIU is gearing up for thorough evaluations through June to identify and remove unqualified VASPs. The FIU's assessments will focus on determining whether VASPs have adequate measures in place for user protection and are safeguarded against risks of money laundering. To bolster its efforts in preventing money laundering risks, the FIU intends to establish a framework where lawyers and accountants participate in crypto oversight activities.Photo by Andrea Piacquadio on PexelsExamining majority shareholder of VASPThe financial watchdog is also looking to propose amendments to the Financial Transaction Reports Act, aiming to raise the standards for VASP registration by introducing more stringent requirements. Beyond the current assessments of a VASP operator and its executives, the new regulations will involve close examination of its majority shareholder. This additional layer of scrutiny will evaluate the credibility of the major parties related to the VASP, taking into account factors such as their history of loan defaults. The FIU is set to create a system for analyzing cryptocurrency transactions and will strengthen its communication channels, not just with financial institutions but also with prosecutors and police forces. Furthermore, the agency is reviewing the Financial Action Task Force's (FATF) recommendation for freezing transactions in cases of suspicious activities. Once implemented, this will enable the FIU to temporarily halt suspicious transactions before bringing the issue to prosecutors.

Fueled by a crypto rally and higher overseas stock balances, South Korea’s National Tax Service (NTS) reported a sharp jump in disclosures of offshore accounts. On Aug. 26, the agency said 6,858 taxpayers declared overseas financial accounts this year, with a combined balance of 94.5 trillion won ($67.6 billion), up 38.3% in filers and 45.6% (29.6 trillion won or $21.2 billion) in value from last year.Photo by Piotr Łaskawski on UnsplashCrypto gains drive offshore filingsWithin that, reports of overseas bank deposits and cryptocurrency accounts rose to 46.4 trillion won ($33.2 billion) this year, more than 12% above 2024. That figure excludes stock accounts, which alone totaled 48.1 trillion won ($34.4 billion). Tax officials attributed the increase largely to the surge in crypto prices and higher balances in overseas stock holdings. The trend is underscored by CoinMarketCap data: the crypto market cap now stands roughly at $3.87 trillion, up 86% from $2.08 trillion a year ago. By asset type, the largest share of filers reported overseas bank deposits (3,197 people), followed by cryptocurrency (2,320) and stocks (1,992). By value, stock accounts dominated with 48.1 trillion won ($34.4 billion), compared with 23.5 trillion won ($16.8 billion) in bank deposits and 11.1 trillion won ($7.94 billion) in cryptocurrencies. Korean law requires residents and domestic corporations to disclose foreign financial accounts if their combined balance exceeds 500 million won ($358,000) on any month-end date during the year. Reports must be filed with the local tax office by June of the following year. The NTS said it will step up enforcement against suspected non-filers, using cross-border information-exchange data to verify offshore holdings. Penalties will include administrative fines, penalty notices, criminal referrals, public naming of violators and the collection of back taxes. The agency added that it is preparing to share crypto transaction data under the OECD’s Crypto-Asset Reporting Framework (CARF) and urged anyone subject to the rules to promptly file amended or late reports for overseas crypto accounts. The recent bullish sentiment in crypto, which fueled the uptick in foreign financial disclosures, has also been driving public interest in digital assets and boosting expectations for altcoins. A survey by CoinNess and Kratos conducted between Aug. 18 and 22 with 2,000 respondents found that 38.5% expect a limited bull run in a handful of altcoins, either with strong real-world use cases or serving as the underlying assets of launched ETFs. Another 28.5% predicted gains would remain centered on Bitcoin and Ethereum, while 20.7% anticipated a broader altcoin season reminiscent of past cycles. The remaining 12.3% forecast the end of the rally and the start of a downturn. Won stablecoins: policy and risksPolicy momentum around stablecoins is also picking up in South Korea. The Financial Services Commission (FSC) plans to introduce a bill in October governing won-pegged stablecoins as part of the second phase of the Virtual Asset User Protection Act. The legislation is expected to set rules for issuance, collateral management and internal controls. Amid these changes, companies are showing growing interest in launching won-based stablecoins. Kaia, an EVM-compatible, layer-1 blockchain, recently signed a memorandum of understanding (MOU) with blockchain solutions provider Open Asset to collaborate on projects tied to Korean won–backed stablecoins. The partnership will focus on issuance, distribution, service launches and developing practical use cases. Circle President Heath Tarbert has recently joined calls for a won-backed stablecoin. In an interview with The Korea Economic Daily, he underscored South Korea’s world-class payments infrastructure and said a digital won could help the country play a leading role in blockchain finance. Blockchain transactions, he noted, operate differently from traditional payment rails, making some form of digital currency, whether a stablecoin or a central bank digital currency (CBDC), a necessity. Meanwhile, at a recent meeting with top executives from the country’s four major financial groups, Tarbert ruled out collaborations on won-denominated stablecoins. Instead, he promoted Circle’s dollar-pegged stablecoins and suggested exploring joint initiatives centered around them. Not everyone sees stablecoins as a net positive. NICE Investors Service, a local credit rating agency, warned in a recent report that if banks issue won-based stablecoins, their interest income could suffer. The agency said adoption would likely weigh on banks, benefit securities firms and leave credit card companies largely unaffected. It added that a large shift of funds into stablecoins could shrink banks’ deposit base and weaken their intermediary role. Still, banks that issue stablecoins directly could soften the blow by tapping new fee-based revenue streams.