FSS governor weighs in on key question in Terra case

Virtual assets may in some cases be securities, the governor of the Financial Supervisory Service (FSS) suggested on Thursday.

Financial Supervisory Service Chairman Lee Bok-hyun, speaks to reporters at a press conference held in Yeouido, western Seoul, on Thursday. [NEWS1]

Virtual assets may in some cases be securities, the governor of the Financial Supervisory Service (FSS) suggested on Thursday.

His comments came as Korea is struggling to determine whether crypto is covered by capital markets laws and whether the masterminds behind the failed Terra coins are subject to these laws.

The determination is key as the case against Do Kwon and others may rest on whether they were selling simple assets or actual financial products.

FSS Gov. Lee Bok-hyun did not offer a firm opinion on the exact nature of virtual assets, and the role of the FSS in investigations into the collapsed coins is peripheral. He only noted that those insisting that virtual assets are not securities may not be fully considering all possibilities.

"I disagree with those arguing that there is no room for some virtual assets to be acknowledged as securities or financial products in a wider scope of the definition," Lee said at a luncheon held in Yeouido, western Seoul, with reporters on Thursday.

He indicated that the law as it exists may provide guidance ahead of the bureaucracy arriving at its own definitions.

"I know it's difficult to make a decision before the system" has been established, Lee added. But if there are matters that can be translated legally, not systematically, "the legal institution should be able to make the decision."

Prosecutors are reviewing whether to categorize Terra coins as securities in an ongoing investigation into the Terra crash, in which the value of TerraUSD and Luna fell to near zero in May. If the coins are determined to be securities, the investigation into the crash could begin to involve possible violations of capital market laws. This could include unfair trading and price manipulation.

The government plans to announce guidelines on token securities in the fourth quarter.

Arrest warrants have been issued for Kwon, co-founder of Singapore-incorporated Terraform Labs, and five others, according to local media reports Wednesday.

The FSS chief said the FSS has informally delivered views on the Terra crash and data on problems that could arise if the definition of securities is interpreted too broadly, Lee added.

Lee also commented on the responsibility of the banks in relation to suspicious foreign exchange transactions that have been identified in recent months.

"They have not been able to identify the reasons" behind the suspicious transactions. If banks want to claim innocence, "they should have a specific story on why they are not responsible for transactions that may end up involving more than 10 trillion won ($7.2 billion)."

Suspicious transactions at banks, including Shinhan Bank and Woori Bank, total more than $6 billion, according to the FSS in August. Much of the money was transferred from a crypto exchange and then overseas.

The FSS required more banks to submit suspicious foreign exchange transaction reports in July after Shinhan and Woori made the reports the previous month.

Lee said more time will be needed before reaching a conclusion on this case because the investigation is extensive and involves large amounts of money, but pledged to provide updates.

BY JIN MIN-JI [jin.minji@joongang.co.kr]