A report feature on the South Korean local news site “sedaily.com” demonstrated that regulators accused Delio, a renowned Bitcoin lender, wrongly in June. The Delio team blamed the South Korean Financial Service Committee (FSC) for misinterpreting the law.
In the submission, the FSC accused Delio of engaging in fraud and money embezzlement. The FSC allegation exposed the Bitcoin lender to settle heavy court fines and subjected the firm to regulatory scrutiny.
Impact of Misinterpreting the Law
The Delio team argued that the FSC charges were baseless and lacked a sufficient legal background. Reflecting on the existing law, the Delio team argued that the financial regulators applied regulations unreasonably.
At that time, the South Korean regulatory agencies had not established clear regulations on virtual assets and management of digital products. In the filing the regulators questioned the legality of Delio’s withdrawal and deposit suspension.
The FSC argued that the suspension of operation violated the law on virtual asset. An advanced report issued by the Financial Intelligence Unit (FIU) revealed that the regulators demanded the Delio chief executive Jeong Sang-ho to step down from office.
Additionally the FIU ordered the suspension of Delio operations for three months. The troubled Bitcoin lender was required to settle a penalty amounting to around 1.896 billion South Korean won, which equates to $1.4 million for contravening with the law.
Delio to Sue South Korean Financial Regulators
In the report, the FIU argued that the Delio failed to meet the money laundering requirements before launching new products and services. Citing the Specific Financial Information Act, the South Korean authority requires the virtual assets service providers (VASP) to develop well-defined procedures to examine the financial risk, including money laundering, before introducing a new product to the market.
After examining the risk assessment approach adopted by Delio, the FIU discovered that it launched around 41 products without meeting the regulatory requirements. A report from Delio CEO revealed that FIU sanction limits legal interpretation and the application of arbitrary rules.
Sang-ho condemned how the FIU treated the critical players in the crypto sector. He argued that the FIU action could diminish the growth of the crypto industry. The executive lamented that the assets seized by the authority could negatively affect the operation of the business.
Significance of Implementing Clear Rules on Virtual Assets
In his report, Sang-ho admitted that the existing regulation on virtual assets was unclear. He demanded answers on whether the lenders offering loans where virtual assets are used as collateral were classified as VASP.
Also, the executive requested the authority to clarify whether a provision under the Special Financial Services Act that requires firms to introduce the lock-up of funds should be extended to virtual assets. Concerning the existing regulations, the Bitcoin lender noted that the law fails to clarify whether virtual assets deposits and other management products were grouped as financial products.
Addressing the media, the Delio team lamented that the sanction imposed by FIU failed to support business growth. They blamed FIU for attempting to bring their business down.
An announcement conveyed by the Delio legal team revealed that under the existing regulations, no law entails the regulatory requirements for virtual assets and management of VASP. The lawyers regretted that the FIU treated virtual asset deposits and management products as financial investment products, which was inappropriate and wrong application of the law.