The government of South Korea is breaking its domestic blockchain industry into three sectors, with 10 subdivisions, with the guidance of the Korean Standard Industrial Classification (KSIC) according to a report. These include blockchain systems, dApp development, cryptocurrencies and other groups.
Three ministries have collaborated on this project to produce a final draft of Korea’s new blockchain classification standards. The National Statistical Office, the Ministry of Science and Technology, and the Ministry of Information and Communication produced the classification scheme as a basis for policy making, with an end goal of promoting the industry within a regulatory framework.
The scheme defines cryptocurrency exchanges as cryptocurrency asset exchanges and brokerages. This classification may seem minor, but it has the very important effect of recognizing digital exchanges as regulated financial institutions. Previously, Hacked reported that Korea classified digital asset exchanges as communication vendors. Under the original definition, virtually anyone could create a digital asset exchange, without regulatory oversight. Although the new regulations may make it more difficult for some companies to conduct business in the country, it also has the positive effect of legitimizing the industry in the eyes of people who view regulations as a requirement for legitimacy. In addition, the framework may address concerns covered under existing anti-money laundering (AML) and know-your-customer (KYC) requirements for the financial industry.
With these new guidelines, the FSC has requested that the Korea Financial Intelligence Unit (KFIU) conduct oversight on digital currency transactions, as well as user behavior. In addition, regulators are investigating three major Korean banks, including Nonghyup, Hana Bank and Kookmin, presumably for their role in financing digital currency operations that were either fraudulent or otherwise acting in ways that were incompatible with the country’s AML and KYC requirements.
In addition to the three ministries that are directly involved in this project, a total of 43 federal ministries in Korea, as well as 17 regional municipalities have provided input. Over 160 financial institutions and other enterprises have also participated in helping to shape the new regulations in a nationwide survey of the sector.
The new categorizations take blockchain-powered infrastructure for dApps into consideration, such as those powered by EOS, Ethereum and NEO, as well as cloud computing services that utilize blockchain technology, and cryptocurrency mining activities and operations. Other activities that were included in the survey include finance, security, insurance, intellectual property management, supply-chain management, medical record-keeping and software development.
Besides fraudulent activities on the part of cryptocurrency exchanges and ICOs themselves, this new set of standards also comes as a response to the recent attacks on people’s digital assets by hackers who have stolen millions of dollars in cryptocurrency. Regulations addressing this concern would be expected to require higher levels of data security, which would be designed to benefit the users of cryptocurrency exchanges and other platforms. With these requirements in place, an all-out ban on ICOs in South Korea would be unnecessary, meaning that there is now a path forward for ICOs to conduct business in the region.
In addition to regulating the industry as a whole, the government of South Korea is exploring its own blockchain projects. The Ministry of Science and ICT will invest $207 million into blockchain projects by 2022, and the central bank is considering the use of blockchain in its objective of a “cashless society” by 2020.