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South Korea gears up to combat illegal crypto operations

Cryptocurrency in front of South Korea flag

The country establishes dedicated interagency teams to work towards a crackdown on illegal activities associated with cryptocurrency

South Korean financial authorities are working towards establishing a framework to collaborate and take decisive action against illegal cryptocurrency-based operations in the country, local news agency Yonhap reported. The news of a potential interagency crackdown comes amid the growing concern over the booming crypto markets leading to a surge in speculative investments and illegal activities.

Explaining what led to the initiative, Koo Yun-cheol, head of the Office for Government Policy Coordination, said in a vice ministers’ meeting on crypto earlier today that “There is a need to pay special attention to the occurrence of illegal activities using virtual assets.” He added that such interagency collaboration will be key in ensuring an effective crackdown of illegal operations.

The Financial Services Commission will issue stricter guidelines to local financial institutions with regards to the monitoring of cryptocurrency and digital assets withdrawals. Financial institutions will be responsible for reporting any suspicious activity to the state-run Financial Intelligence Unit, an agency that  investigates financial crimes.

Furthermore, the report notes that the finance ministry and the Financial Supervisory Service will contribute to the crackdown by monitoring cross-border cryptocurrency transactions. The interagency investigation is expected to continue at least until June 2021.

The crypto industry has been under the microscope in South Korea since the country officially imposed the Act on Reporting and Using Specified Financial Transaction Information in late March 2021. The act mandated real-name account trading in local banks for all local crypto exchanges.

While the law was meant to prevent financial crimes such as money laundering, its damaging effect for domestic crypto firms did not go unnoticed. A vast majority of smaller-scale crypto firms reported being unable to forge partnerships with local financial institutions. The crypto community also fought back against the law, as it essentially monopolised the crypto industry in South Korea.

Despite cryptocurrencies like Bitcoin hitting record prices, regulators in South Korea have been wary of their influence and impact. Recently, Bank of Korea Governor Lee Ju-yeol stated that cryptocurrencies have “considerable limitations” as a method of payment. He also warned that the volatile price fluctuations of cryptocurrency may pose a threat to financial stability.

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