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Monday, Oct 02, 2023

New Regulation In South Korea Force Shut Down Of 37 Crypto Exchanges

New Regulation In South Korea Force Shut Down Of 37 Crypto Exchanges

New regulation for crypto exchanges in South Korea is now effective. 37 exchanges were unable to meet the new requirements, and were forced to stop operations in the South East Asian country. 29 crypto exchanges met the deadline to continue operations, but only four of them can offer trading in Korean won.

The Act on Reporting and Using Specified Financial Transaction Information requires crypto exchanges to obtain Information Security Management System (ISMS) certification and submit a report to the country’s Financial Intelligence Unit (FIU) by midnight on September 24. The new requirements force exchanges that want to offer trading in Korea won to form a partnership with a local bank to offer real-name accounts to users.

29 crypto exchanges survive, 4 allowed to exchange in Korean won

The Financial Services Commission (FSC), South Korea’s top financial regulator, said Saturday that 29 crypto exchanges are ISMS-certified and submitted a report to the FIU before the deadline. Their submissions will be processed within three months.

Only four out of 29 exchanges — Upbit, Bithumb, Coinone, and Korbit — have successfully partnered with banks to offer real-name accounts to their users. A bank partnership is required for exchanges to offer traders the ability to buy and sell cryptocurrencies in exchange for Korean won. The remaining 25 exchanges are only allowed to operate as crypto-only exchanges.

Gopax, Huobi Korea and Gdac tried to reach a deal from banks but to no avail, and will have to halt their Korean-won trading services.

The 29 exchanges are obliged to set up a system to adopt global anti-money laundering standards called the “travel rule.”

The travel rule is a global standard imposed by the Financial Action Task Force, an intergovernmental anti-money laundering watchdog, on virtual asset service providers such as cryptocurrency exchanges and digital wallet providers. The country’s virtual asset service providers are required to establish the travel rule system, which requires real-name verification of senders’ identities for international transfers, by March 25 next year.

Three exchanges — Bithumb, Coinone, and Korbit — launched a joint venture to develop a travel rule system together, while Upbit, the largest exchange in South Korea, announced its own system developed by its subsidiary.

The Act on Reporting and Using Specified Financial Transaction Information requires crypto exchanges to be equipped with ISMS and to form partnerships with banks by Friday.

37 exchanges forced to shut down

After the Friday deadline, 37 exchanges without the required qualifications face closure as their businesses became illegal by the new law. They face a fine of up to 50 million won ($42,365) or up to five years of jail time. The shutdown of the 37 exchanges, however, is expected to make just a minor impact to the market, as their trading volume account for less than 0.1 percent of the total transactions made here. Their hold of investors‘ money is estimated to not exceed 500 million won.

The industry is also paying keen attention to ongoing discussions on legislation regarding the virtual asset industry as a whole at the National Assembly. There are 13 proposed bills in Parliament that could possibly set the foundation for the industry.

In legislation proposed by the opposition People Power Party, the requirement for real-name accounts would be removed while another bill proposed by the ruling Democratic Party and Justice Party stipulates an exchange has to gain approval from the government, strengthening the current registration system.

“It is meaningful that many unqualified exchanges are sorted out during the registration process,“ an official at a cryptocurrency exchange said. ”But it is also true that real-name accounts became an entry barrier, even for blockchain startups that have great potential.”

Source: New Regulation In South Korea Force Shut Down Of 37 Crypto Exchanges – Fintechs.fi


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