Virtual Asset Industry: "On-site confusion expected if all transactions over 10 million won are reported"

Virtual Asset Industry: "On-site confusion expected if all transactions over 10 million won are reported"

DAXA submits opinion to Ministry of Government Legislation regarding amendment to Enforcement Decree of Special Financial Information Act

Reluctance even to impose customer information verification obligations

Domestic virtual asset businesses submitted an opinion stating that on-site confusion is expected regarding the amendment to the Enforcement Decree of the 'Special Financial Information Act' (Special Act) which was pre-announced in March.

In particular, concerns were raised that virtual asset businesses would not only have to report all transactions over 10 million won but also bear the obligation to verify accuracy in addition to the existing customer identification obligation.

According to the virtual asset industry on the 3rd, the Digital Asset eXchange Association (DAXA) submitted an opinion containing such content regarding the amendment to the Enforcement Decree of the Special Financial Information Act and the amendment to the 'Reporting and Supervision Regulations for Specific Financial Transaction Information' through the Ministry of Government Legislation's National Participation Legislative Center on the 29th of last month.

This reflects the opinions of 27 virtual asset service providers (VASPs) registered in Korea, including the five major virtual asset exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax).

DAXA stated that while it sympathizes with the purpose of the amendment to solidify the domestic anti-money laundering (AML) system, some amendments include obligations not present in the Special Financial Information Act, thus exceeding the scope of legal delegation and containing discriminatory elements compared to other financial sectors.

Specifically, it stated that deeming all virtual asset transactions over 10 million won as suspicious transactions and requiring virtual asset businesses to submit suspicious transaction reports (STR) to the Financial Intelligence Unit (FIU) violates the principle of legal reservation, among others.

The current Special Financial Information Act imposes the obligation to report suspicious transactions only when there is reasonable grounds and entrusts this judgment to financial institutions, but the proposed enforcement decree goes beyond merely specifying judgment criteria and creates new reporting obligations.

DAXA also explained that according to the amendment to the enforcement decree, the number of suspicious transaction reports from the five major virtual asset exchanges would increase 85-fold from the existing 63,408 cases to 5,445,133 cases based on last year's figures, describing the situation as realistically difficult.

Regarding the imposition of customer verification obligations on virtual asset businesses, it was argued that while the Special Financial Information Act only requires customer identification, the subordinate enforcement decree adds a separate phased obligation of 'verification'.

It further argued that "violation of customer identification obligations is a ground for sanctions such as fines in other financial industries, and for virtual asset businesses, it can even lead to business suspension," asserting that imposing a verification obligation not present in the superior law also exceeds the limits of delegated legislation.

In addition, opinions were included that improvements are needed regarding ▲ the lack of fairness in assessing major shareholder eligibility compared to other financial sectors, and ▲ the absence of clear standards for assessing the risk of overseas businesses.

The current amendment to the Enforcement Decree of the Special Financial Information Act will be pre-announced for legislation and regulation changes until the 11th, and is expected to be finalized in July after review by the Regulatory Reform Committee and the Ministry of Government Legislation, and approval by the Cabinet meeting.

Among these, regulations specifying details delegated by law, as amended by the Special Financial Information Act, will come into effect on August 20. Other provisions of the amendment to the Enforcement Decree and supervisory regulations are scheduled to be implemented sequentially from January to August of next year.