South Korean politicians are calling on public officials to stop joining crypto companies for bigger pay cheques as exchanges race to bolster compliance divisions.
Rising numbers of financial regulators and police officers are leaving the public service for crypto groups that are scrambling to comply with new regulations, according to legislators.
A mid-level official at the Financial Services Commission, the nation’s financial watchdog, quit in recent weeks to join Bithumb, one of the country’s big crypto exchanges, according to Roh Woong-rae, a ruling party politician.
“It is like leaving fish to a cat,” said Roh, who is a member of the parliament’s labour and environment committee. “As regulations related to crypto assets remain weak, we are seeing lax morals in some public officials including financial regulators.”
Roh called the move “highly inappropriate” because the financial commission is in charge of regulating crypto exchanges.
Under South Korea’s Public Service Ethics Act, retiring high-ranking government officials face restrictions for new jobs in the private sector relevant to their former work. Roh has urged for current rules to include lower-ranking officials.
“Dozens of former public officials like policemen, Financial Services Commission/Financial Supervisory Service officials, advisers to lawmakers and prosecution officials have joined crypto exchanges in recent years to deal with regulators,” said a cryptocurrency executive.
The recent wave of personnel moves has intensified after the government allowed only the country’s four major crypto exchanges to continue their Korean won-based crypto trading, wiping out dozens of small and midsized exchanges in a regulatory overhaul designed to clean up the country’s overcrowded crypto industry.
Cryptocurrency companies are facing growing regulatory scrutiny across the world as their trading volumes mushroom. Binance.US, the American subsidiary of the world’s largest crypto exchange, hired its first chief risk officer on Friday.
South Korea’s crypto trading is dominated by four big exchanges — Upbit, Bithumb, Korbit and Coinone — which account for more than 90 per cent of the country’s total trading volume.
“The big players are offering handsome incentives for regulators to scout them in order to make future rule changes more favourable to them,” said Lee Chul-yi, head of Foblgate, a midsized exchange.
After the regulation earlier this year, the government recently relaxed its regulatory stance on crypto trading in a bid to please young voters ahead of the presidential election in March.
The National Assembly in November passed a bill to delay the planned taxation of capital gains from cryptocurrency trading by one year. The country now plans to impose capital gains tax of 20 per cent on annual gains of more than Won2.5m ($2,116) from cryptocurrency trading from 2023.
