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 email@example.com
To contact the editor responsible for this story: Michael Ferullo at firstname.lastname@example.org
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)