South Korea is creating a Financial Innovation Bureau (FIB) within its Financial Services Commission (FSC). This Bureau will formulate and implement policies to regulate the country’s blockchain industry. The FSC made this announcement after it held a top-level meeting with representatives from the Ministry of Interior and Safety.
It is worth noting that the FSC is the top financial regulator in South Korea where it falls under the Office of the Prime Minister. On the other hand, one of the roles of the Interior & Safety Ministry is to provide support for financial development in local governments. Therefore, this top-level meeting highlighted the significance of the blockchain technology to South Korea.
More importantly, it shows that the South Korean government views the cryptocurrency industry positively if regulated appropriately. Consequently, it opted for the regulation of blockchain technology instead of opposing it. In fact, the FIB’s principal objective is to nurture the growth of this industry through policy formulation and implementation.
- The Buildup to This Move
Industry analysts have been expecting this kind of move by South Korea given the country success with policies that promote financial innovation. For example, South Korea runs the third-best stock exchange in Asia with a market capitalization of over $1.2 trillion. This level of equity market success is possible today because the country embraced new ways of creating, moving, and storing capital.
Similarly, embracing blockchain technology in the present moment would make South Korea a leader in financial services in the future. In fact, the FSC eyes the prospect of the country being a critical player in global financing as the Fourth Industrial Revolution takes shape. It believes that responding to new developments in finance including blockchain technology will help it achieve this objective.
Interestingly, the Bank of Korea (BOK) issued a statement a few days before the FSC announced its plans to forms the FIB. In this statement, the BOK stated that the cryptocurrencies posed a limited risk to financial institutions and investors within South Korea. More specifically, it clarified that the South Korean cryptocurrency market was too small to affect the financial markets significantly.
This statement seems to have been a buildup to the announcement by FSC. More specifically, the South Korean government may have felt that blockchain technology was still insignificant to the $1.411 trillion-South Korean economy. However, this significance was growing, and therefore, discussions at the top level of government were necessary to regulate its impact on financial institutions and investors.
- The Role of the International Community in This Decision
South Korea is the 11th largest economy worldwide. Any move it makes has a bearing on international markets, and likewise, global factors affect it as well. Therefore, the country makes its decisions in light of world events and trends. For example, the fact that cryptocurrencies are becoming a dominant feature in most economies influenced the country’s decision to form the FIB.
More specifically, these virtual currencies were a point of discussion within the G20. More specifically, this global body of the top global economies set a deadline for recommendations on regulating cryptocurrencies. South Korea seems to be moving forward on the initial set of unified regulations put forth by the G20.
However, reservations on the extent of government involvement in this industry exist as well. For example, the South Korean government now regards cryptocurrency exchanges as legal entities. Previously, it saw them as communication vendors. The question is how far this regulation will grow when the industry favors a self-regulating mechanism.
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