FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Attitude of the country towards financial services using crypto currencies
In Korea, various crypto currency related services such as exchange markets and wallet services exist. Of late, NFT-related services have become popular, and many NFT issuance/transaction platforms are being released. In response, some have demanded strengthened regulation of the overheated cryptocurrency market, and accordingly the regulatory grounds for virtual asset service providers were set out in the Act on Reporting and Using Specified Financial Transaction Information (the “Specified Financial Information Act”), the Korean anti-money laundering law. In addition, as shown in Section 1.f.iii, legislators and stakeholders have been discussing the enactment of the Virtual Asset Services Act.
Obligations and requirements to provide financial services using crypto currencies described above
Currently, the only regulation related to virtual asset services is the Specified Financial Information Act. The Specified Financial Information Act defines “virtual asset service provider” (“VASP”) as a person who conducts the business of i) trading virtual assets or exchanging them for other virtual assets, ii) brokering, intermediating, or acting as an agent with regard to such transactions, or iii) storing or managing virtual assets. VASPs must report to the Korea Financial Intelligence Unit (“KoFIU”). For the report to be accepted by the KoFIU, the VASP must (i) have an ISMS certification, (ii) use a real-name verifiable account, (iii) have not been subject to any penalties rising to the level of a fine or more (including the CEO and executives) within the past 5 years and (iv) be submitting the report within 5 years of expungement of the report. While the KoFIU determines whether there may be any grounds to reject the report based on these requirements, it still has the discretion to reject reports even if all the requirements have been met.
In order to be issued a real-name verifiable account from a bank, a VASP must (i) manage customer deposits separately from its own assets, (ii) obtain the ISMS certification and (iii) manage customer transaction details separately. The bank or other financial institution must also confirm the VASP’s compliance with these requirements as well as the reporting requirements.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
In the case of a virtual asset service, it is important to review whether the virtual assets to be handled by the service provider meet the definition of virtual assets under the Specified Financial Information Act, and whether the service provider is a VASP under the same Act. Furthermore, while the Specified Financial Information Act could certainly be interpreted to govern all types of VASPs, in light of the recent trends in regulation by the financial regulators, VASPS should be examined on a case-by-case basis to understand their risk of being sanctioned for not filing the report when due and more. This is because while the regulators have expressly stated that the operators of typical virtual asset services such as exchanges, wallet providers, and custodians, must file the KoFIU report, they have yet to provide guidelines for the newer types of virtual asset services.
Also, as explained in Section 1.f.i. above, with widespread social consensus on the need for the regulation of virtual Assets, the enactment of the Virtual Asset Service Act is being actively pursued. The proposed Virtual Asset Service Act includes provisions on the issuance of virtual assets (ICO), measures to regulate market entry (registration system, authorization system, etc.), and regulations on unfair trade practices.
Market size for financial services using crypto currencies and biggest companies in this business area
According to the results of a recent fact-finding survey conducted by the KoFIU, the domestic virtual asset market is worth KRW 55 trillion, with 5.58 million real trade users, and the average number of transactions by these users is 4 per day. This statistic includes only the 24 virtual asset traders whose VASP reports have been accepted by the KoFIU, meaning the total market size for including VASPs other than virtual asset traders would be larger. Dunamu, which operates the virtual asset exchange, Upbit, has the largest market share. Dunamu’s total revenue last year was about KRW 3.7 trillion.
Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
While various virtual asset services are already being offered or scheduled to be released in the future, as mentioned in Section 1.f.iii, the financial regulators have not taken an official position on new virtual asset businesses other than the more typical ones like exchanges and wallet providers. For these reasons, in reality, there appear to be many virtual asset businesses operating currently without registering as VASPs. With respect to NFTs in particular, while new NFT businesses are actively being launched, considering the general controversy surrounding NFTs and the lack of clarity on whether they constitute virtual assets, we have yet to identify any cases of companies registering as VASPs for NFT-related businesses.