South Korea’s Financial Services Commission (FSC) has recently issued a press release dated November 3, 2020 (“Press Release”) vide which it has proposed to tighten the anti-money laundering (AML) requirements for virtual assets service providers (“VASPs”). The new rules will be in furtherance of the revised Act on Reporting and Using Specified Financial Transaction Information (“the Act”) which is scheduled to be in force from March 25, 2021. It is open for consultation from November 3, 2020, to December 14, 2020.
The Press Release specifies the following key provisions:
(A) Definition of VASPs
The Act defines virtual assets service providers as entities or businesses which engage in purchase and sale, exchanges, transfer of, safekeeping and administration, intermediation, or brokerages on virtual assets. Enforcement decree in this regard provides examples which include, virtual assets trading services, digital wallet service providers, etc.
(B) Definition of Virtual Assets
The Act further defines virtual assets to include digital tokens which have an economic value and can be digitally traded and transferred. It excludes digital tokens that cannot be exchanged with fiat currencies, commodities, or services, and the purpose of which is limited by the issuer. Prepaid electronic payment methods or e-money, electronically registered stocks, electronic notes, electronic B/L, prepaid cards, gift cards, and electronic bonds are also excluded from the definition of virtual assets.
(C) Requirements for opening real name accounts
The Act provides for a requirement for VASPs to use real-name accounts for financial transactions with the customers. The enforcement decree prescribes certain compliances for VASPs to open a real-name account with the financial institutions:
(i) there should be a separation of the customer’s deposit;
(ii) a certificate from the Korea Internet and Security Agency (KISA) for information security management system shall be obtained;
(iii) there shall not be a record of fines and penalties within the past 5 (five) years;
(iv) customers’ transaction record shall be separately maintained; and
(v) an assessment shall be made regarding the money laundering risks associated with the VASPs by the financial institutions.
(D) Applicability of the Travel Rule
The Act proposes introducing a ‘travel rule’ to be applicable to VASPs for virtual assets transfer in line with the recommendations set forth by the Financial Action Task Force (FATF). Under the travel rule, the VASPs are required to provide the beneficiary, information on the transfer of the virtual assets.
The enforcement decree specified that transactions involving more than KRW 1 million (the Korean Republic won one million) shall be subject to the travel rule. It will be applicable to VASPs from March 25, 2022, which gives such entities enough time to implements solutions for information sharing.
Authored by Shivani Agarwal, Founder and Samaksh Khanna, Co-founder
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