The existing Personal Information Protection Act provides that local companies cannot request social security numbers
Legal experts are hesitant to celebrate the South Korean government’s preparations to implement know your customer (KYC) and anti money laundering (AML) compliance processes, as concerns have been raised regarding whether the requirements contradict other laws.
Digital Today, a South Korean news outlet, pointed out that the new requirements for compliance would be at conflict with the existing Personal Information Protection Act. This law stipulates that local companies cannot legally request social security numbers.
This measure also applies to financial institutions. However, they are allowed to submit a request for it under exceptional circumstances, such as when it is needed to process major banking transactions.
The media outlet also noted that there is a high possibility of continued conflict with existing laws, since there is no clear definition for businesses that handle virtual assets, such as crypto exchanges.
The bill, which is called the Enforcement Decree of the Special Payment Act, is expected to start being implemented by March 2021 and it will require all virtual asset services providers to confirm the real names of customers by verifying them using personal data, such as their social security numbers.
The Financial Information Analysis Institute gave its input on the ambiguity of the upcoming AML-KYC bill on crypto exchanges. The Institute argued that since an exchange is hosted purely on the internet, it is not a financial institution.
“It does not mean that virtual asset operators are given the status of financial business operators or incorporated into institutional financial companies through the enforcement of the revised special money law.” it stated.
An unnamed industry official expressed his hopes that the legality behind such regulations will be laid out more clearly for businesses and other entities to follow.
“Before, the exchange industry voluntarily shared blacklists to fulfill its anti-money laundering obligations, but there was a time when the unification of opinions was not working well, so it was not easy. In these cases, as the related obligations are imposed, I hope that the legal basis for implementing them will be prepared more clearly at the level of the authorities.”
The crypto bill’s stipulations to have exchanges issue real name accounts may harm the growing industry. Experts are concerned that small exchanges utilising honeycomb accounts may either be forced into compliance or have to exit the industry.
Only four big cryptocurrency exchanges (Upbit, Coinwon, Bithumn, and Korbit) have managed to switch to real-name accounts.