South Korea's Financial Services Commission (FSC) has put forward a revision to the credit finance act, aiming to prohibit the use of credit cards by local citizens for purchasing cryptocurrencies.
The proposed amendment primarily seeks to restrict South Korean crypto traders from buying crypto on foreign exchanges, according to the FSC. The regulator has expressed concerns about illicit outflows of domestic funds, potential money laundering, and the promotion of speculative activities.
South Korea's FSC Targets Cryptocurrency Payments
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The highest financial regulatory body in South Korea has introduced these restrictions due to worries surrounding the unlawful movement of domestic funds abroad through card payments on overseas virtual asset exchanges.
The FSC's notice emphasized the need to prohibit virtual assets as a form of payment in order to combat these concerns. The commission hopes that by establishing collaborations with international entities, it can strengthen measures to prevent both foreign currency outflows and money laundering.
Feedback from the public on the proposed amendment is currently being sought, with the consultation period running until February 13th. Following the review and resolution process, the amendment is projected to come into effect in the first half of this year. South Korea is widely regarded as a lucrative market for cryptocurrencies, boasting a high rate of crypto adoption. A survey conducted by KuCoin revealed that 26% of South Korean adults currently hold cryptocurrencies.
In an effort to regulate the industry, the country has already mandated identification verification for all users involved in deposits and withdrawals from local cryptocurrency exchanges. However, these regulatory measures do not extend to overseas crypto exchanges targeting the South Korean population, according to Finance Magnates.
South Korea Eyes Credit Card Limits
South Korea is not the first to consider imposing restrictions on credit card purchases of cryptocurrencies. Taiwan, for example, has previously prohibited the use of credit cards for crypto transactions and has even advised banks and credit card companies not to engage in partnerships with cryptocurrency service providers.
Various banks have occasionally prevented their customers from using credit cards to purchase cryptocurrencies, citing concerns over the asset class's volatility and associated risks. The FSC aims to broaden the scope of prohibited credit card payments to include crypto exchanges in order to effectively combat the outflow of foreign currency and mitigate the risk of money laundering, as stated in a recent announcement. The FSC has invited organizations and individuals to provide their comments on the proposal by February 13th.
In addition to this credit card restriction, the FSC has also proposed new regulations to protect users of cryptocurrency exchanges. These rules would require exchanges to store a minimum of 80% of their customers' deposits in cold wallets, which are offline wallets offering greater security against hacks. Furthermore, exchanges would be obliged to compensate customers for using their deposits by paying them transaction fees.
Overall, the FSC's proposed amendment to the credit finance act in South Korea reflects the growing concerns surrounding the use of credit cards for cryptocurrency purchases. With the aim of curbing illegal financial outflows and strengthening anti-money laundering efforts, the regulator seeks to strike a balance between fostering innovation in the crypto industry and ensuring the protection of investors and the integrity of the financial system, Business Insider reported.
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