Cryptocurrency Regulatory Affairs: Seoul Develops Digital Assets Law to Fight North Korea’s Illegal Financing

South Korea is reportedly planning to introduce legislation to track and freeze North Korean cryptocurrency and virtual assets used to fund its illegal weapons programs.

The bill was reportedly designed in response to the growing threat of North Korean hackers, who have stolen billions of dollars worth of cryptoassets in recent years. If passed, the bill could potentially be a significant step in the fight against Pyongyang’s nuclear missile program and could be used to deter ransomware attackers from using cryptocurrencies as a payment rail to facilitate theft and exploitation.

Furthermore, Seoul reportedly plans to create a national cybersecurity committee headed by the head of the National Security Office, which will report directly to the president.

The committee will consider implementing a range of measures to strengthen South Korea’s defenses against hacking attempts by foreign entities, including those linked to North Korea.

The European Central Bank is exploring a possible CBDC

The European Central Bank (ECB) is exploring the possibility of issuing a digital euro, which could be issued as a central bank digital currency (CBDC).

While the digital currency could enable easier and cheaper cross-border payments, the ECB acknowledged that the digital euro could face challenges in non-euro countries, including the fact that the proposed assets would need to be compatible with the payment systems of a number of countries.

This could be difficult to achieve, as there is huge diversity in the technology and compliance controls implemented through the payment ‘pipes and plumbing’ in different non-EU countries. The ECB is still in the early stages of exploring the possibility of issuing a digital euro, and the public consultation will run until January 2024.

The IMF and FSB are developing a policy framework that addresses the risks posed by crypto

In a document released last week, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) joined forces to address the major macroeconomic and financial stability risks that crypto poses to the broader financial system and economy.

The framework is based on five pillars:

1. Improving understanding of cryptoassets and their risks. This includes collecting data on cryptoasset markets and activities, as well as developing analytical tools for risk assessment.
2. Reducing the anonymity of cryptoasset transactions. This would make it difficult for criminals to use cryptocurrencies to launder money or finance terrorism.
3. Strengthening regulation and supervision of cryptoasset intermediaries. This would help ensure that these intermediaries are subject to appropriate supervision and are not used to facilitate financial crime.
4. Promoting international cooperation on the regulation of cryptoassets. This would help ensure that cryptoasset markets are regulated in a consistent manner and that criminals cannot exploit regulatory loopholes.
5. Developing contingency plans for potential systemic risks from cryptoassets. This would help cushion the impact of any major disruptions in the crypto markets.

The framework aims to help authorities identify and respond to risks in a meaningful way and should serve as a guide for public sector actors seeking to reduce systemic risk in local economies. This document is a work in progress, and the IMF and FSB will continue to monitor the crypto-asset ecosystem and update the framework as needed.