After Bithumb crash, watchdog says recourse impossible

The head of Korea’s financial watchdog told reporters Thursday that the agency was closely monitoring the explosive rise of cryptocurrencies in Korea, but admitted it did not have the authority to impose any consumer protection measures after a recent server crash on a Korean trading platform resulted in huge losses for investors.

Choe Heung-sik, the governor of the Financial Supervisory Service who took office two months ago, said in a meeting with reporters that providing consumer relief for damages in cryptocurrency investments fell outside of its role as a financial regulator.

“If a person decides to gamble at a local casino [and suffers financial damage], we cannot intervene and supervise the situation because what’s involved is not a financial product,” Choe said.

The Korean government has been hesitant to classify cryptocurrencies like bitcoin as a financial product because its effect on the country’s financial market is highly uncertain. Choe’s statements came shortly after a server crash on Bithumb, Korea’s largest cryptocurrency trading platform, caused users to suffer huge losses. Because there is no government safeguard for investors, many Bithumb users are reportedly in the process of filing a lawsuit against the platform.

“The Financial Supervisory Service is monitoring the situation and will intervene as soon as [cryptocurrencies] are classified by law as financial products,” Choe said. “But at the moment, all we can do is monitor and provide advice at best.”

Aside from cryptocurrencies, the meeting also touched on Korea’s rising household debt, which reached 1,419.1 trillion won ($1.3 trillion) in the third quarter. “It’s normal for household debt to increase in line with economic growth,” Choe said, “but the problem right now is its excessiveness.”

“Right now, we are at the phase of preparation to impose measures in slowing down its pace of increase,” he added. “We are seeing signs of stabilization, and I think the speed of increase will soon keep pace with economic growth.”

Choe also emphasized the role of financial regulators in bringing more foreign institutions to Korea. “The Korean financial market is completely open,” Choe said, “and we are imposing the same supervisory standards for foreign companies as we do for local companies.”

The Financial Supervisory Service and its counterpart Financial Services Commission have started a task force to explore lowering the barrier for foreign companies to enter the Korean market in the hopes of making it a financial hub for Northeast Asia.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]