A planned monthly reporting requirement on cryptocurrency holdings, which has raised privacy concerns among investors, is effectively unworkable under current law, industry officials said. Exchanges cannot arbitrarily suspend deposits and withdrawals for customers who refuse to consent to sharing their information, leaving them unable to meet the reporting obligation. The Bank of Korea has acknowledged the problem and is consulting with the Ministry of Economy and Finance on the issue.
The central bank met with officials from domestic cryptocurrency exchanges on the 16th of this month to discuss practical problems arising from the reporting of cross-border virtual asset transfers, according to financial industry sources on the 26th. At the meeting, the exchanges raised the issue that complying with the monthly balance reporting requirement is virtually impossible under the existing legal framework. Reporting of cross-border virtual asset transfers becomes mandatory on Dec. 3 with the revised Foreign Exchange Transactions Act, but the specific scope and targets of the reporting have yet to be finalized.
A draft reporting manual the central bank sent to the Digital Asset eXchange Alliance (DAXA) earlier this month called for monthly submission of domestic cryptocurrency holdings for any user with at least one record of an overseas transfer since July 19, 2024. According to the office of Rep. Park Soo-young of the People Power Party, 1,272,878 users at the country's five largest won-based exchanges had records of cross-border transfers between July 19, 2024, and the end of September this year.
The problem is that no provision has been made for cases in which users do not consent to monthly balance reporting. If exchanges must obtain separate consent to submit balance information, some users will inevitably refuse, yet exchanges cannot arbitrarily restrict deposits and withdrawals on those grounds. Article 11 of the Virtual Asset User Protection Act prohibits blocking deposits and withdrawals without justifiable cause, and refusal to consent to sharing personal information is not listed as grounds for such a block under the enforcement decree.
"If we ask customers to consent to providing personal information for balance reporting, we expect a significant share will refuse," an official at a cryptocurrency exchange said. "But we cannot block deposits and withdrawals for those who do not consent, so it is realistically difficult to operate the reporting system."
Some in the industry have criticized authorities for designing the reporting system without fully reviewing potential conflicts with existing laws. No exception clauses or handling standards were prepared for users who decline to share personal information, even though exchanges can take no action such as restricting deposits and withdrawals. Critics say the fact that relevant agencies are only now discussing the problem, little more than a month before the rules take effect, points to inadequate preparation.
The central bank also recognizes the problem and is taking a flexible approach, reviewing everything from the fundamental need for monthly balance reporting to how it would be carried out. "We are keeping all options open, including narrowing the scope of balance reporting as much as possible and requiring it only when necessary, and we are consulting with the Ministry of Economy and Finance," a Bank of Korea official said. "With the Dec. 3 effective date approaching, we will finalize the details during November."