South Korea releases latest announcement on amendment to the "Special Financial Transactions Information Act," strictly prohibiting service providers from offering anonymous cryptocurrency trading services.

According to the latest statement released by the Financial Services Commission (FSC) of South Korea yesterday (3rd), the forthcoming Special Financial Transactions Law expected to take effect next year will strictly prohibit domestic digital asset service providers in South Korea from offering any transaction services involving high-risk anonymous cryptocurrencies.

South Korea Enacts Strict Ban on Privacy Coins Trading

The Financial Services Commission (FSC) stated in a notice:

"Even though they fall under the category of virtual assets, these 'dark coins' are difficult to trace in terms of transaction flow, so digital asset providers are still prohibited from dealing with these high-risk digital assets that are privacy-focused."

The dark coins referred to by the FSC are those privacy-oriented privacy coins with transaction records that are difficult to trace. This regulatory update will impact the adoption of privacy coins such as Zcash (ZEC), Monero (XMR), and Dash (DASH) in South Korea.

The above regulations are part of the amendment to the South Korean Special Financial Transactions Act, which covers most of South Korea's cryptocurrency regulatory framework. The amendment to the Special Financial Transactions Act is expected to be implemented from March 2021. Although the amendment officially classifies cryptocurrencies as assets and exchanges as financial institutions (previously classified as information providers rather than financial institutions), the more regulatory agencies intervene, the higher the compliance threshold for cryptocurrency service providers. After the law is enacted, existing exchanges must implement the KYC and anti-money laundering policies required by the regulatory authorities, and exchanges must also report on their operations within six months of the law's implementation.

In fact, South Korean regulatory authorities have been the most aggressive in cracking down on privacy coins. In September 2019, the cryptocurrency exchange OKEx Korea suddenly announced the delisting of five privacy coins including ZEC, XMR, DASH, ZEN, and SBTC, and the local exchange Upbit also announced the delisting of three privacy coins in the same month.

The Dilemma of Privacy Coins Development

While the importance of privacy is increasingly recognized by the public, for any country in the world, value transfer tools that cannot be traced are difficult to tolerate, as privacy coins are difficult to track and can easily be used for terrorist financing or by sanctioned governments.

In addition to OKEx Korea and Upbit, in August last year, Coinbase's UK branch also delisted Zcash due to concerns from UK regulatory authorities. Europol has been monitoring the use of tokens such as Monero and Zcash in cybercrime since last year.

Last year, Bloomberg pointed out that under global regulatory pressure, privacy coins face challenges in development and may even lead to more exchanges being forced to delist these privacy coins that can obscure the flow of funds. Jesse Spiro, Global Head of Policy at blockchain analysis firm Chainalysis, also admitted:

"This is seen as a major obstacle to the existence of privacy coins, and more exchanges are expected to delist privacy coins."