South Korean business groups are pushing for legislation that would help clarify the legality and use of initial coin offerings by blockchain companies, and put them under strict supervision of both the country’s financial and technology authorities.
Currently, ICOs are in a legal gray area in South Korea, treated as not-legal but not-illegal. They are a popular means for blockchain companies to raise funds to support their projects, but the regulatory ambiguity around ICOs has driven local blockchain companies to raise funds overseas.
The Korea International Trade Association (KITA), the Korea Blockchain Industry Promotion Association (KBIPA) and Democratic Party Rep. Hong Eui-rak on May 2 presented a draft of a bill during a debate at the National Assembly that aims to remove uncertainties for blockchain-related businesses.
There currently is no legislation defining terms concerning the blockchain industry. The 21-page Framework Act for Blockchain Industry Promotion, seen by Bloomberg Law, seeks to do that as well as demonstrate how blockchain concepts fit into existing law.
It also suggests tax support for blockchain technology such as breaks on income tax, corporate tax, acquisition tax, property tax, and registration license tax.
Hong must gather 10 lawmakers to submit the bill for legislation, but has struggled for support, an aide from his office told Bloomberg Law on May 3. He fell short of support earlier this year to submit a Cryptocurrency Transaction Act that would institutionalize digital token transactions.
“We are really shocked by the low support. With the new Framework Act for Blockchain Industry, it’s still quite rough. There are a few improvements that still need to be made,” said Lee Joon, an aide in Hong’s office, but added the office hoped to gather the support to pass it in parliament in December.
A key objective of the new bill is outlining who should be responsible for the development of blockchain technology, pointing to the Financial Services Commission and Ministry of Science and ICT to oversee its financial and technological regulation, respectively.
Another key point is illustrating the effects of blockchain ledgers such as smart contracts, he said. The draft seeks to define blockchain’s relation to smart contracts as “a computer program for guaranteed automatic enforcement of a contract based on blockchain technology.”
KITA in particular is evaluating blockchain-related trade opportunities and has a blockchain system to keep its trade-related electronic documents.
But as a framework act, it doesn’t have specific regulatory prescriptions, which are delivered through presidential decree or enforcement rules, he said. “Our draft may be simpler than you imagine,” he said. Nonetheless, it remains difficult to gain support because of people’s low understanding of the technology, he said.
The legislation seeks to provide a legal basis to blockchain so it can be used effectively across a wider spectrum of fields, Lee said. But “we cannot ensure that it will make the cryptocurrency market safer,” as those who seek to commit crimes will make any effort to do so regardless of legislation, he said.
“However, if a legislation is created, regulation can become more efficient, as nurturing of the technology can be more efficient,” Lee added. “Without law, it’s very general. The idea can only be approached with principle, making it difficult for quick response in specific cases.”
A regulatory task force in September 2017 pledged to ban all ICOs in a bid to tackle fraud and speculative overheating in the market, which was one of the world’s largest. The ban has not been legislated, but domestic blockchain companies have launched their ICO activities abroad for fear of legal uncertainty at home.
The draft does not contain specific provisions on issuing cryptocurrencies, purpose of their distribution and their economic function, but it suggests that ICOs can be regulated by the existing Commercial Act, Electronic Financial Transactions Act, Financial Investment Services and Capital Markets Act, and the Banking Act.
South Korea has sidestepped legislation on cryptocurrencies as it does not recognize the digital tokens as either a financial product or currency. But blockchain, the underlying framework for cryptocurrency, has been touted as a cornerstone of the country’s “fourth industrial revolution” vision to pioneer emerging technologies.
KITA vice chairman Han Jin-hyun said South Korea lacked the effort to develop a systematic support strategy for blockchain companies especially in comparison to Singapore, Switzerland, and the U.S.
“The loss of domestic human and physical capital due to uncertain business environment is a major detriment to national competitiveness. In order to prevent such situation, it is necessary to establish a place where we can safely do business in Korea,” Han said at the debate.
The business groups said blockchain technology is attractive for its efficiency and reliability, but innovative companies in South Korea struggle amid uncertainties over local laws and regulations.
“We need to create a rational regulatory environment and dismiss unreasonable regulations toward the blockchain industry,” Park Chang-gi of the KBIPA said in his keynote speech.
National Assembly Speaker Chung Sye-kyun said that because there is no universal standard on cryptocurrency, the same enforcement issues are occurring across countries in regulating and promoting the technology.
“We need a discussion to secure methods to provide institutional support and supplementary measures for the development of related fields,” he said at the debate, pointing to blockchain’s potential in logistics, notarization, proof of identity, voting, and other public services.
To contact the reporter on this story: Elaine Ramirez in Seoul at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Ferullo at email@example.com
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