Fintech company Ripple is lobbying regulators in South Korea to change their approach to crypto so the company can enter the market.
Rahul Advani, Singapore-based policy director for Asia Pacific at Ripple, says this is the first time the company has attempted to sway financial regulators with specific proposals.
“We can’t offer our on-demand liquidity services in Korea,” Advani told DigFin. “We’ve surveyed local financial institutions and believe there is interest there for blockchain-based services, including payments.”
Ripple works with banks including Japan’s SBI, Siam Commercial Bank, Bangkok Bank, and Santander, as well as fintechs such as Tranglo, Nium and BeeTech.
Its RippleNet uses blockchain to enable banks to make near-instant cross-border payments, via specific country-to-country corridors. The company also uses XRP, a digital asset developed by Ripple Labs before the founding of Ripple itself, as a bridge between currencies so correspondent banks don’t need to pre-fund trades.
Blocked in Korea
It is working with Korean blockchain fintech GBC Korea and advisory firm Oxford Metrica to argue for regulatory changes. The trio released a white paper outlining their proposals in January and this month will try to raise support from the local financial sector. Korea’s digital-asset marketplace reached $45 billion in size at the end of 2021, Advani says.
The Korean National Assembly ratified amendments in 2020 to its financial reporting laws that defined cryptocurrency as a virtual asset. It required all “virtual asset service providers” to register with the Korean Financial Intelligence Unit and follow reporting rules for anti-money laundering and counter-terrorism financing.
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The two requirements have driven out many blockchain companies as they require real-name verified bank accounts by VASPs facilitating financial transactions; plus they require additional compliance with Korea’s internet and cybersecurity authorities. The regulation has also forced Korean banks to avoid the space, which means they cannot provide on- and off-ramps between won and crypto.
Advani says Ripple acknowledges these regulations exist to protect consumer protection, but the company would like to see the language differentiated for different types of businesses, so that enterprise B2Bs like Ripple can operate without undergoing the same requirements.
What Ripple wants
The company’s preferred outcome is threefold.
First, it argues Korean regulation should recognize different types of digital assets. Currently all such instruments are regarded as the same, but Ripple argues that other jurisdictions – such as Singapore, Abu Dhabi, and Switzerland – differentiate between payment or exchange tokens, utility tokens, and security tokens.
Second, it argues that licensing needn’t be one size fits all, but recognize differences in operators’ risk. The company argues that its enterprise-oriented business is a different type of risk than a digital exchange offering crypto to retail investors. Currently, however, it would be licensed like an exchange.
Third, it suggests the Financial Services Commission extend its regulatory sandbox to blockchain companies. The FSC launched one in 2019 with an initial focus on open banking and identity verification.
The FSC did not respond to email requests for comment.
Advani says Ripple engages with around 50 governments on broader issues around blockchain-based business models and licensing. If the effort to create changes in regulation in Korea is successful, the company will consider replicating the approach elsewhere.