Enforcement decree up for deputy ministers' meeting Thursday

Regulatory reform panel's major-shareholder eligibility exceptions incorporated

'Minor violations may be approved' codified in law

Decree to take effect Aug. 20 after Cabinet vote

Executives from Naver, Naver Financial and Dunamu present at a joint press conference held at Naver 1784 in Seongnam, Gyeonggi Province, in November last year. [Naver]
Executives from Naver, Naver Financial and Dunamu present at a joint press conference held at Naver 1784 in Seongnam, Gyeonggi Province, in November last year. [Naver]

New criteria have been established allowing virtual asset service providers to have their registration accepted even when a major shareholder falls under disqualification grounds under the Act on Reporting and Using Specified Financial Transaction Information — commonly known as the Special Financial Information Act — if the shareholder was penalized under a corporate joint-punishment provision or if the violation is deemed minor. Should the amended enforcement decree take effect as scheduled on Aug. 20, Naver Financial and Dunamu are expected to become the first cases to benefit from the exception.

Government ministries confirmed Wednesday that the Ministry of Government Legislation has completed its review of the amended enforcement decree. The amendment will go before a deputy ministers' meeting Thursday before proceeding to a Cabinet vote and promulgation. The decree takes effect Aug. 20, though certain provisions — including an expansion of travel rule obligations — will apply six months after promulgation.

The decree is follow-up legislation to the Special Financial Information Act revised in February, and spells out the criteria for assessing the eligibility of major shareholders in virtual asset service providers. The Presidential Committee on Regulatory Reform had earlier recommended that the government introduce exception provisions to ease the uniform application of disqualification grounds during major-shareholder eligibility reviews.

In response, the amendment adds Article 10-12, Paragraph 1, establishing the exception criteria. The Korea Financial Intelligence Unit (KoFIU) director will as a rule decline to accept registrations from providers whose major shareholders fall under disqualification grounds, but may exceptionally approve them when the shareholder was penalized under a corporate joint-punishment provision or when the director determines the violation to be minor.

Previously, any disqualification ground automatically resulted in a rejected registration without exception. Going forward, there will be a legal basis to weigh the nature of the violation and the degree of responsibility. Under the decree taking effect Aug. 20, Naver Financial and Dunamu will also be eligible for the exception if the KoFIU director determines their violations to be minor.

The amendment also spells out eligibility criteria for corporate major shareholders of virtual asset service providers. Financial soundness and social creditworthiness requirements have been set out separately for each type of major shareholder — financial institutions, general corporations, individuals, foreign corporations and institutional private equity funds.

For general corporations acting as major shareholders, the debt-to-equity ratio must not exceed 300 percent as of the end of the most recent quarter, among other financial soundness requirements. Companies belonging to cross-shareholding-restricted conglomerates or primary debtor groups must also maintain a group-level debt-to-equity ratio below 300 percent.

Major shareholders must also have no record of damaging the credit order through debt default in the past five years and must not be a major shareholder or related party of an insolvent financial institution. The amendment further allows registration to be denied to providers that lack qualified personnel, organizational structure, IT infrastructure or internal control systems.

Meanwhile, the scope of travel rule obligations will also be broadened. Currently, the rule applies only to transactions of 1 million won ($700) or more between domestic virtual asset service providers, but going forward it will apply regardless of transaction amount. Because 60 percent of domestic virtual asset transfer transactions fall below 1 million won, the measure aims to block potential regulatory evasion and money laundering.

Receiving virtual asset service providers will also be subject to information-acquisition obligations. If a provider fails to receive relevant information about virtual assets transferred from another provider, it must request that information from the sending provider and must refuse the transaction if the information is ultimately not provided. Transactions of 10 million won or more will be treated as suspicious, requiring providers to establish and operate their own monitoring systems.


forest@heraldcorp.com
kyoung@heraldcorp.com