South Korean banks spearhead blockchain adoption

While big tech firms Facebook and Samsung have stolen the limelight, several big financial institutions have quietly launched their own cryptocurrency initiatives. The action is led by South Korea, where regulatory authorities have gradually shifted in favor of the new technology stack. This came to a head at a Seoul press conference on June 11th when the country’s largest bank Kookmin announced that it had signed an agreement with blockchain specialist Atomrigs Lab to explore crypto asset management.

Together, the companies will combine blockchain expertise with financial infrastructure to create a digital asset management service — that could potentially bridge legacy banking and crypto services to provide South Korean institutional investors with a credible entry point.

The agreement comes as part of a broader digital transformation initiative for the bank, which includes plans for using Artificial Intelligence, cloud computing, and big data to improve services.

And, unlike the internal stablecoins of banks like JP Morgan, Kookmin’s scheme appears to be centered on providing secure custody to external customers. Kookmin plans to use a technology called ‘Lime’ that uses secure multiparty computation (MPC) to protect private keys.

A more open stance

The 2017 ICO bubble was a catalyst for a regulatory crackdown that resulted in a ban on Initial Coin Offerings (ICOs), severe restrictions on anonymous cryptocurrency trading, and new scrutiny of capital gains taxes. This pushed a dark cloud over the South Korean cryptocurrency scene in late 2017.

This uncertainty lingered until September of the following year when South Korean bank Nonghyup announced it would no longer process deposits and withdrawals on behalf of the Coinis exchange — mirroring the actions of other banks around the world which all cited similar concerns about illicit transactions.

In 2019 South Korea’s stance on cryptocurrency has softened, with regulators adopting a more welcoming approach that opens the door to potential collaborations between traditional finance and blockchain startups.

And unlike elsewhere, the South Korean Financial Services Commission (FSC) ordered Nonghyup to restore services to the Coinis exchange, setting a precedent for positive future relations between the legacy and crypto sectors.

Around the same time, the FSC chairman clarified that the commission had no problems with banks issuing ‘virtual accounts‘ to cryptocurrency exchanges for the deposit and withdrawal of fiat as long as adequate anti-money-laundering (AML) safeguards and know-your-customer (KYC) checks were in place.

Two months later in November, the South Korean government enacted the Special Act on Financial Innovation Support; inviting banks to join a regulatory sandbox launching on April 1st.

The Kookmin Bank is just one of several financial service providers to join this experiment, which gives all participants exemption from current financial regulations for two years. At the end of this period, new regulations are expected to have been developed, and if early signs are any indication — several new blockchain schemes will be in operation.

Bridging blockchain and banking

Along with Atomrigs, Kookmin is also working with KEB Hana bank to develop a real estate platform that will test the issuance of beneficiary certificates on the blockchain.

KEB Hana, the largest foreign exchange bank in the country, has been prolific in filing blockchain patents — with a total of 46 that are said to be not just about applying blockchain technology into the banking system, but also about connecting the new business models and the bank’s internal system through a blockchain.

Other top South Korean financial institutions have also joined the sandbox. Woori Bank is designing a blockchain-powered currency exchange and ATM for use at airports, drive-through restaurants, and shopping malls, and the Industrial Bank of Korea (IBK) has partnered with global blockchain specialist Tera to work on several unidentified projects.

Korea’s oldest financial institution, Shinhan Bank, is ahead of the pack. It has launched a blockchain-based lending platform that speeds up the application process with an encrypted password to grant instant access to the data needed for approving loans, enabling the public to apply online and receive credit without face-to-face interaction.

With the crypto markets turning bullish, South Korea’s booming tech sector is well placed to forge ahead with new blockchain partnerships in the coming years.