Financial regulators in Japan and South Korea are systematically enhancing control over the connection between the cryptocurrency sector and the traditional financial system. The formal reason is to bolster user protection.
The Financial Services Agency (FSA), Japan’s primary financial regulator, required local banks to implement measures to strengthen control over transactions involving cryptocurrencies. Specifically, banks must reject transactions if the sender’s name differs from the account holder’s name.
The proposed measures are advisory in nature, but if they become mandatory, the operations of local crypto peer-to-peer (P2P) exchanges could become illegal. The FSA representatives justify their recommendations by citing user protection concerns. They reference data from the National Police Agency (NPA), which indicates a recent surge in crypto-related fraud and illicit money transfers.
Moreover, the Japanese government actively supports the development of the Web3 industry in the country, hailing decentralized technologies as “a new form of capitalism.” The FSA also plays a pivotal role in government initiatives, such as organizing Japan Fintech Week.
The Financial Intelligence Unit of South Korea (KoFIU) also proposed tighter control over the cryptocurrency sphere. According to a press release, the regulator aims to enhance supervision and inspection of crypto exchanges in 2024, which can lead to the prohibition of certain platforms from operating in the local market. Additionally, efforts are underway to establish a system for monitoring suspicious transactions. This will enable the preemptive blocking of trades during preliminary investigations.
The KoFIU press release cites data indicating that in 2023, over 16,000 crypto transactions potentially linked to illicit activities were recorded in South Korea, representing a 90% increase compared to 2022. Besides, South Korean regulators identified the operations of approximately 100 unregistered cryptocurrency organizations. The heightened control aims to safeguard user interests and lay the groundwork for the enactment of local legislation governing the crypto market.
The cryptocurrency market in South Korea will be regulated by a legal framework set to take effect in 2024. As preparations for its implementation proceed, local regulators are refining and toughening various rules. For instance, South Korea’s Financial Services Commission (FSC) plans to ban citizens from purchasing cryptocurrencies with credit cards.
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