South Korea to Begin Vetting Crypto Executives Before Employment

South Korea’s financial watchdog wants to create new requirements that prospective executives of crypto firms must meet before resuming duties. On February 5, the country’s Financial Services Commi- ssion (FSC) published a preliminary announcement of legislation, amending the reporting requirements for authorized virtual asset service providers (VASPs) in the country.

According to the new proposal, the FSC would have the authority to filter through prospective executives of crypto companies. Whether it's a blockchain platform or a project floating a new coin or a non-fungible token, the recruitment process must pass through the FSC.

If the proposal becomes law, crypto companies would have to inform the FSC of personnel changes, including details of new hires. The companies would then have to wait for approval from the FSC before they start their jobs.

There are also a few other provisions in the FSC’s new proposal. For instance, the rules would give the Commission some authority over the renewal of VASP licenses. Specifically, the agency may choose to suspend license registrations of companies where law enforcement authorities, whether local or international, are investigating its personnel.

The FSC is asking the general public for opinions on the proposal. Specifying a March 4 deadline, the Commission called for written opinions containing the name of the individual or organization responding, and whether or not they are in favor of, or against the proposal. Opposing responses are expected to provide reasons for their position.

South Korea, while supportive of cryptocurrencies, has been working at tightening regulations. For instance, the FSC’s Financial Intelligence Unit (FIU) is looking to create legislation to tackle crypto mixers. According to a local report, authorities are concerned about how easily mixers can be used by criminal players to launder money. The situation is particularly concerning because, at the moment, the country has no specific laws against crypto mixers.

A crypto mixer is a tool that makes transactions virtually untraceable by distributing assets to multiple wallet addresses. This technology has been so worrisome that the Financial Crimes Enforcement Unit (FinCEN) of the United States Treasury Department announced regulations to curb mixer usage. According to an FIU official, the US’ move influenced similar discussions in Korea.

There have been several cases of mixers used to launder money around the world. For instance, Europol collaborated with Dutch authorities to shutter Bestmixer.io in 2019, after it processed illicit funds of more than $200 million worth of Litecoin, Bitcoin, and Bitcoin Cash. There also was the Twitter hack of 2020 where hackers took over several high-profile accounts to promote a crypto scam. This resulted in 400 victims duped of $121,000 worth of Bitcoin, with half of the funds processed via ChipMixer.

As part of efforts to tighten regulations, the FSC published a legislative notice last month, proposing a ban on purchasing digital assets using credit cards. The FSC wrote in the notice that there are concerns about the “illegal outflow of domestic funds overseas due to card payments on overseas virtual asset exchanges, money laundering, speculation, and encouragement of speculative activities.”  The Commission also plans to cooperate with international brands to stem the currency outflow and tackle money laundering.