China, Japan and South Korea cooperate to curb cryptocurrency speculation? A trilateral regulatory approach may be unveiled

South Korean regulators are seeking cooperation with Beijing and Tokyo to address cryptocurrency speculation. Seoul authorities have inspected crypto trading at six commercial banks. South Korea's experience could help inform a possible trilateral regulatory approach.

Trial and error method shapes trilateral cooperation

South Korea's Financial Services Commission (FSC) will deepen cooperation with Chinese and Japanese agencies to curb speculative trading. FSC Chairman Choi Chung-kyung revealed at a press conference that the finance ministers of Asian countries had exchanged views last month. Yonhap News Agency quoted Choi as saying that Seoul will "establish a detailed system for cooperation with Beijing and Tokyo." South Korea's top financial regulator briefed the media on the bank inspections to be carried out on Thursday, which will also involve the South Korean Financial Intelligence Unit. He warned against what he called the "irrational trend" of investing in cryptocurrencies, pointing to the "continued frenzy of speculative investments."

In Choi's view, cryptocurrencies cannot function as a means of payment. "Virtual currencies can only trigger adverse reactions," he told reporters. Fraud, illegal fundraising, hacker attacks, speculation and market price manipulation are among them. According to The Korea Herald, government officials are likely to shut down all cryptocurrency-related businesses to minimize the impact of the above. Choi said the world is facing a "pandemic of policy challenges," adding that South Korea's experience in "trial and error" could help form the implementation rules for trilateral cooperation.

Trust, but check the gatekeepers

South Korea's financial regulator is currently conducting inspections at six commercial banks, including Woori, Kookmin and Shinhan Bank. Crypto traders' accounts have been targeted. Last month, authorities ordered banks to stop issuing so-called "virtual accounts," which are often used by cryptocurrency exchanges to manage customer funds. A new system to end anonymous trading and force traders to undergo real-name authentication is planned to be applied by the end of January.

The head of the FSC issued another warning in this regard: due to its anonymity, "virtual currency transactions are very vulnerable to money laundering." Cui Chongqing called on banks to act as "gatekeepers" when monitoring crypto-related transactions. He is worried that banks remain silent about the flow of funds used illegally. The ongoing investigation is to confirm whether banks check money laundering and non-real-name transactions as required by law.

The South Korean official complained that within the existing legal framework, all the regulator can do is to propose inspections. Choi Chung-kyung also pointed out that it will take time to fill the regulatory gap. South Korean authorities are planning to impose stricter requirements on exchanges. A country that is home to some of the largest crypto exchange service providers is also enacting tougher sanctions for cryptocurrency-related crimes. The regulator also vowed to enforce strong measures against illegal activities even if the regulations have not been amended, KBS radio reported.

It is not clear what specific sanctions might be imposed on banks and exchanges. The FSC chairman confirmed that suspending virtual account services appears to be the only measure the authorities can take. If inspectors discover any illegal activity, the account will be closed. Cui Chongqing declined to comment on the new plan to tax cryptocurrency transactions and sanction tax evasion.