The crypto industry has been experiencing convulsion over the last few days, which is expected to continue in the coming months. In the United States, the industry has achieved a significant victory, but the situation could become more restrictive in Asia as one of the region’s leading economies is considering implementing new regulations.
South Korea Ready To Take A Stand Against Crypto Mixers?
According to a report from Decenter, South Korea’s Financial Services Commission (FSC) is actively reviewing the introduction of regulations for virtual asset mixers. As reported, this initiative signifies a significant shift in the country’s approach to digital asset management and the implementation of stricter regulatory measures against the nascent sector.
The South Korean regulatory body claims that mixers, developed initially to protect users’ privacy, have “increasingly become tools for laundering illicit funds by groups such as hackers.” The FSC’s concern stems from the difficulty in “tracking funds once they have been processed through a mixer.”
This issue has also caught the attention of the United States, where the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department announced legislative notices last year to regulate mixers as “money laundering services.”
The urgency of regulating these mixers was highlighted when a domestic blockchain company, Ozzie, suffered a hacking incident involving $81 million in virtual assets through the ‘Orbit Bridge.’ According to the report, Dongguk University Professor Hwang Seok-jin stresses the importance of blocking mixer-based transactions at exchanges to prevent cashing out of hacked virtual assets.
However, establishing a concrete regulatory framework may take time due to the mixer’s cross-border nature and the need for international cooperation. The FSC acknowledges this, noting that the “mixer issue is internationally shared and requires a global approach.”
As mentioned, the US has moved to crack down on these platforms, alleging similar reasons, such as “money laundering” and “lack of transparency.” In doing so, the country faced backlash from the crypto community and akin organizations claiming that mixers are privacy tools.
Crypto think tank Coin Center filed a lawsuit against the Office of Foreign Assets Control (OFAC) for their actions against mixer Tornado Cash and its lead developers. The non-profit stated the following:
Plainly, given the specific powers granted to the Treasury Department by Congress, these are not the kinds of activities that can be censored or blocked. The Tornado Cash sanction was, therefore, made in excess of statutory authority and must be set aside.
South Korea’s Takes The Stick
In addition to the above, the FSC has warned against the brokerage of US spot Bitcoin Exchange-Traded Funds (ETFs) by South Korean securities firms. This move follows the Securities and Exchange Commission’s (SEC) approval of spot Bitcoin ETFs in the US.
The FSC’s statement emphasizes the regulatory divergence between South Korea and the US regarding crypto ETFs. South Korea is trying to remain “cautious,” upholding restrictions on financial institutions from investing in virtual assets, alleging the protection of the “stability” of its financial sector.
An FSC representative clarified that the SEC’s decision would not promptly reevaluate South Korea’s current stance, maintaining the prohibition on spot Bitcoin ETFs.
This decision reflects South Korea’s strict approach to crypto regulation, where digital currency is not recognized as a financial asset, and investment in crypto by financial institutions has been banned since 2017. The country’s strict regulatory framework under the Capital Markets Act also excludes crypto from the scope of underlying assets for investment contract securities.
Cover image from Unsplash, chart from Tradingview