16 Feb 2019
Earlier this week, the South Korean government decided to keep the ban on ICOs (Initial Coin Offerings) which was introduced due to highly risky investments that threatened to hurt potential investors. It is believed that the decision to keep the ban might result in other Asian crypto markets benefiting.
Despite the ban, South Korean investors are still allowed to participate in token sales, as long as they are conducted outside of the country. This is also a loophole that a lot of South Korean companies exploited by simply establishing firms in overseas markets, even though these firms are only real on paper. Most of them chose to branch out to countries with friendlier regulations, such as Switzerland and Japan.
However, according to the financial authorities, this might not be enough for these companies to avoid facing regulatory issues in South Korea, particularly if they decide to target local investors. The South Korean Office for Government Policy Coordination recently stated that at least 22 companies had held token sales outside of the country, after which the authorities decided to contact them.
So far, only 13 firms responded, and the authorities estimated that an average amount that they managed to raise includes around $30 million per ICO. The government estimated that local firms managed to raise around $500 million in total during Q3 and Q4 of 2017 alone.
Further, South Korea's virtual currency task force claims that these firms "failed to transparently disclose how the funds were used and refused to cooperate with the government," despite the fact that they managed to raise tens of millions of dollars.
Due to scandals involving several smaller exchanges, as well as the largest South Korean exchange, UPbit, there is currently an ongoing investigation in the country. One of the scandals happened in November 2018, when one of the ICOs pulled an exit scam, which resulted in a theft of at least $10 million.
Due to these and other similar incidents, it becomes clear that the crypto industry in South Korea experiences a serious lack of regulations that would protect investors from scams and similar forms of unethical behavior. National Policy Committee chairman, Min Byung-do also stated that the government needs to crack down on fraudulent operations such as money laundering, but that this needs to be done without damaging the crypto industry.
In other words, the problems need to be resolved, but the door for potential new business models needs to remain open in South Korea. Others, such as Liberty Korea Party member, Kim Sun-dong, stated that they are disappointed with the government's approach to regulation. Instead of considering how their decision might affect the future of crypto and blockchain in the country, they simply banned the entire sector, forcing firms to relocate to other markets.
Considering the loopholes that were mentioned previously, it is clear that the decision to ban ICOs did not have a particular effect when it comes to stopping the trend. However, it did cost South Korea a lot, as numerous multi-billion dollar opportunities were wasted due to the decision.
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