Will cryptocurrency investments become another LH fiasco?

Financial Services Commission (FSC) Chairman Eun Sung-soo, right, speaks during a National Assembly National Policy Committee meeting, April 22. Korea Times file

By Lee Kyung-min

Financial Services Commission (FSC) Chairman Eun Sung-soo has ordered FSC officials handling cryptocurrency policies, Monday, to file a report on the volume of their virtual currency investments by May 7, drawing attention to whether another slew of employee misconduct allegations might be unearthed, concerning public servants abusing insider information for illicit personal gains.

This rushed move by the country's top financial regulator seeks to prevent a scenario like the real estate speculation fiasco sparked by state-run Korea Land and Housing Corp. (LH). LH is an organization supervised by the land ministry, in which many of its employees are suspected of having abused government-managed data.

Those subject to the May 7 report include FSC employees whose work involves drafting and applying virtual currency policies or laws; those investigating and monitoring the virtual currency; and those responsible for reporting and managing virtual currency exchanges. Also included are employees in charge of supporting and managing virtual currency technology development.

A lack of rules inside government financial organizations

The FSC chairman's effort to strengthen internal control reflects concerns that virtual currency investments by government employees responsible for policymaking and oversight of the new, virtual coins are not strictly regulated, unlike stock investments made by capital market regulators.

Under the Capital Markets Act, workers at the FSC and Financial Supervisory Service (FSS) must use only one securities firm account for trading. Items bought and sold should be reported to the audit and inspection department of each respective organization every quarter. Officials cannot trade stocks more than 20 times in a three-month period. Senior-level officials there are not allowed to trade stocks at all. They can invest only in exchange-traded funds (ETFs) or overseas stocks.

But no similar punitive measures have been put in place for those who engage in cryptocurrency investing, other than an FSC internal rule whereby employees must report to the FSC chairman if they have made an investment in digital currency. They are also not supposed to invest in the virtual coins based on information that is yet to be made public. But these measures are not binding, and penalties for violating them are not strong.

Greater accountability?

If the current government-wide investigation to detect public officials who are engaged in real estate speculation expands to the country's financial organizations, what remains to be seen is whether this effort will lead to increased accountability for employees across government organizations.

A senior official at Pocheon City Hall in Gyeonggi Province, surnamed Park, was indicted earlier in the day for purchasing 2,600 square meters of land in the city for 4 billion won ($3.5 million) in September of 2020, based on information that subway stations will be developed in the area. The 52-year-old was in charge of public transport policies, and had the discretion to decide where the stations should be built.

The price of the land has since more than doubled, to around 10 billion won. This case was the first one of a public official being prosecuted for abusing government-managed data and insider information. Of the more than 740 officials questioned over the past month, 47 were referred to the prosecution. The total amount of land ― worth over 24 billion won ― purchased by them will not be traded until after those prosecuted are tried and receive a court verdict.

Pushback

Also at play is growing criticism of the FSC chairman, culminating in over 110,000 people signing a Cheong Wa Dae online petition demanding his resignation for patronizing crypto investors ― especially young ones ― for "going in the wrong direction."

Popular sentiment has surged since Eun said that older people "should guide young people in the right direction if they are on the wrong path," during a National Assembly National Policy Committee meeting, April 22.

The remark was part of his response to whether digital currency investors should be protected under the law governing financial consumer protection.

"Cryptocurrency is not recognized as a currency, and should therefore be excluded from the range of the nation's laws that are in place to protect financial consumers," he said.

The phrasing used by the FSC chairman drew a significant outcry from young investors in their 20s and 30s. Many think that those in their 40s and 50s are hypocritical to judge through the prism of "right and wrong," after having grown their own financial assets by borrowing money from banks in earlier eras when the conditions for being approved for loans were less strict, with the main purpose of real estate speculation.

"It is beyond condescending and hypocritical for Eun to lecture today's hard-working young people who are finding it unimaginably hard to own a home, much less have financial assets of any sort. Eun saw his own real estate value increase over the past few years. He has no standing to lecture us about what is right and wrong," the petition read.