South Korea currently has no law against government officials insider trading with the knowledge of cryptocurrency regulations. The case against an employee of the country’s Financial Supervisory Service (FSS) accused of crypto insider trading has come to a standstill without grounds for punishment. However, the government has worked out a plan to prevent future occurrences.
No Applicable Law Currently
The issue of insider trading using the knowledge of the government’s cryptocurrency regulations became prominent last month when an FSS employee was accused of crypto insider trading. The FSS has an active role in creating crypto regulations as well as inspecting banks for crypto-related money laundering measures.
The employee invested about 13 million won on July 3 of last year and sold more than half of his holdings on December 11, Chosun described. Then, on December 13, the government announced a set of strict regulations, including a ban on crypto trading for minors and foreigners.
Guilty or not, there is no law to punish government officials for insider trading of cryptocurrencies. While employees are prohibited from stock trading using insider knowledge, a senior FSS official was quoted by Edaily explaining:
"Currently, there are no provisions in the regulation on virtual currency."
New Code of Conduct Could Help
The rules applicable to stocks do not apply to cryptocurrencies since they are currently not recognized as financial assets in Korea. To prevent future insider trading, Korean prime minister Lee Nak-yeon ordered the creation of a new Code of Conduct to address crypto trading by public officials.
The Korean Anti-Corruption & Civil Rights Commission issued the “Code of Conduct Guide to Cryptocurrency” to the government and public agencies last week. It adds cryptocurrency to Article 12 of the Civil Servant Code of Conduct which, according to Tokenpost, states that:
"Public officials shall not use the information learned during their duties to assist in trading or investing in property related to securities, real estate, etc., or providing such information to others to help them trade or invest."
However, the FSS Did Not Get the Memo
The FSS, however, is not bound by the new Code of Conduct. According to Edaily, the document was not even sent to the FSS. “This guidance document was sent to the central administrative agency, metropolitan area, basic local autonomous body, city and provincial office of education,” an FSS official detailed. A senior official of the FSS Inspectorate confirmed to the publication, “We did not receive any letters of interest.”
The news outlet explained that this is due to the FSS being under the supervision of the Financial Services Commission (FSC) and the Securities and Futures Commission under the current law.
The Financial Services Administration Innovation Committee explained that “redefining the FSS as a public institution weakens the independence and accountability of supervisory institutions, making it more vulnerable to external pressures such as political parties,” Maekyung reported. Edaily continued:
"As the FSS is not a government agency, FSS staff are not covered by the Code of Conduct."
Following media reports, the Korean government issued a statement clarifying that the FSC will inform the FSS of applicable notices “such as the prohibition of virtual currency transactions related to jobs.” An FSS official was quoted by News1 saying, “we will revise our own Code of Conduct through internal consultations,” adding that FSS staff will not be able to use internal information to trade or invest in cryptocurrency.
What do you think of the Korean government’s plan to prevent crypto insider trading? Let us know in the comments section below.