SOUTH KOREA Law and Practice Contributed by: Wooyoung Choi, Suhhee Han, Seonghwan Ju and Matt Younghoon Mok, Lee & Ko
tion, brokerage platforms for trading unlisted shares using blockchain technology have also been desig- nated and operated as innovative financial services. Furthermore, subordinate regulations under the Capi- tal Markets Act have been amended to institutional- ise services that had operated under the innovative financial services framework, such as unlisted share trading platforms and fractional investment trading platforms. ICT Convergence Around September 2019, the government designated the “PASS Mobile Driver’s License Verification Ser- vice” provided by Korea’s major telecommunications companies – SK Telecom, KT Corporation, and LG Uplus – as an ICT regulatory sandbox project, allow- ing it to have the same legal effect as a physical driv- er’s licence. By utilising blockchain technology, the PASS service is linked to the National Police Agency’s driver’s licence system, enabling actual licence photo- graphs registered with the National Police Agency and the Korea Road Traffic Authority to be displayed within the application, thereby preventing attempts to forge or alter licence information or photographs. Other Cases A blockchain-based power trading system titled “VPP Blockchain Platform Service for Small-Scale Distribut- ed Energy Resource Transactions”, which uses block- chain technology and smart contract systems to bro- ker electricity transactions between power generation businesses producing less than 1,000kW and electric- ity users consuming less than 300kW, was designated as a demonstration project under the research and development special zone sandbox framework. In addition, a “Blockchain-Based Electronic Notarization System” was designated as a demonstration project under the ICT convergence sandbox framework. 1.1.3 Regulation of Blockchain Technology Regulation of Blockchain The Korean government recognises blockchain tech- nology as a core infrastructure of the Fourth Industrial Revolution and the Web3.0 era, and generally focuses on promoting the industry as a whole, from the for- mation of the initial market to the development of the broader ecosystem. At the same time, in areas involv- ing virtual assets, the government manages related
risks by imposing regulations on virtual asset service providers (VASPs), including reporting obligations and AML requirements under the Act on Reporting and Using Specified Financial Transaction Information. Currently, no law separately regulates blockchain tech- nology that does not involve virtual assets; instead, relevant laws apply depending on the nature of the rel- evant service. In particular, where financial institutions outsource and utilise blockchain solutions, they must comply with regulations relating to network separa- tion requirements under the Detailed Regulations on Supervision of Electronic Financial Transactions, as well as security measures and reporting obligations under regulations governing the outsourcing of infor- mation processing services by financial institutions. Discussions Regarding Data Privacy on Blockchain Under Korean law, personal information controllers and credit information providers/users are generally required to destroy personal (credit) information once it becomes unnecessary, such as when the purpose of processing has been achieved, unless a statutory exception applies. However, considering the technical characteristics of blockchain, under which information recorded on the blockchain is extremely difficult to delete, the Enforcement Decree of the Personal Infor- mation Protection Act (PIPA) was amended to recog- nise as a valid destruction method the processing of information into a form that can no longer identify an individual, even when combined with other informa- tion (“anonymous information”), provided that restora- tion is rendered impossible (Article 16 (1)(i), proviso, of the Enforcement Decree of the PIPA). Separately, in relation to the issuance and trading of tokenised securities, the ESA was amended to exempt personal credit information recorded on blockchain systems from the destruction obligation under Arti- cle 20-2 of the Credit Information Use and Protection Act, while requiring such information to be managed in accordance with prescribed standards (Article 23-3 of the ESA). To the extent that data processing through blockchain is regarded as equivalent to the processing of per- sonal (credit) information under existing laws, the prin-
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