During the last week, the South Korean government has officially decided to maintain its existing blanket ban on domestic ICOs or Initial Coin Offering in a move which may benefit other major crypto markets in Asia.
Last Friday, the virtual currency task force of the Office for Government Policy Coordination had released a comprehensive report on the ICO industry.
The local financial authorities have stated that the government considers this ICOs model to be an investment vehicle which possesses high risks in many different areas. Being such, the government will keep reinforcing a ban on domestic crypto token sales.
Some foreign crypto firms may be in trouble
Right now, based on some existing policies in South Korea, the local investors are allowed to participate in token sales which are conducted outside of their country.
During the past twelve months, the government of South Korea said that some businesses organizations abused the regulatory loophole by establishing formal paper-companies in overseas markets.
To circumvent the strict ban on the local ICOs, firms South Korea-based firms created entities in specific regions such as Switzerland and Japan, to conduct token sales.
The financial authorities also emphasized that the local companies that initiated token sales on overseas markets may still face some regulatory problems in the country if the companies targeted the local investors.
In a post released recently, the Office for Government Policy Coordination said that almost 22 domestic firms have initiated token sales outside of South Korea. The firms were contacted by the authorities and heard back from 13. The report also revealed that on average, each company has raised almost $30 million in an ICO.
Totally, the government has estimated that local firms have made $500 million in the last two quarters of 2017. The virtual currency task force of the country said that although the firms raised tens of millions of dollars from ICO, most of them failed to transparently disclose how the funds have been utilized and refused to cooperate with the government.
The local cryptocurrency exchange market is actually going through an investigation into the former executives at Upbit, which is the largest crypto exchange of the country, and a few scandals involving minor crypto exchanges.
Besides, according to a report from November last year, a high profile ICO in South Korea has pulled an exit scam, stealing about more than $10 million in user funds.
At that time, an industry insider that asked to stay anonymous said that the case was probably prevented if the government had implemented proper guidelines, as well as regulatory frameworks which are related to ICOs. If the government does still not to establish appropriate regulations in the short-term, more scams in the local ICO sector may happen.
The officials of the government are not satisfied
After a few failed token sales, as well as exit scams, most of the industry agreed upon a strict regulatory framework is needed in order to protect investors.
However, the chairman of the National Policy Committee, named Min Byung-do, said that the government should actually crack down on money laundering, as well as fraudulent operations without causing harm on the root of the industry.
He also said that the government has to leave the door wide open for some new models in business while breaking down on money laundering, as well as speculation with stricter policies. However, he also said that it cannot entirely eliminate the root.
One member of the Liberty Korea Party, named Kim Sun-dong, expressed his disappointment about the approach which the government took toward regulation.
He said that the task force had to consider the future of blockchain development, as well as the crypto sector. Indeed, the government has wholly banned out an area of the blockchain sector which is widely adopted in leading markets like Switzerland.
South Korea missed out on the billion-dollar industry
South Korea might also miss out on multi-billion dollar chances with the recent ban on ICOs.
The most important business entities in the country, which include Kakao, had some plans to conduct crypto token sales in the past.
Kakao is actually the process of initiating a private token sale in Japan, which is worth hundreds of millions of dollars.