A new regulation will take effect in South Korea next month that will require cryptocurrency exchanges to hold at least 3 billion won ($2.3 million) in bank accounts as a measure to protect consumers from possible losses or fraud. This is part of the government’s efforts to tighten oversight and transparency of the crypto industry, which has been growing rapidly in the country.
The Financial Services Commission (FSC), the main regulator of the financial sector, announced the rule on August 24, saying that it aims to prevent exchanges from using customer funds for their own operations or investments. The FSC also said that the rule will help ensure that exchanges have enough liquidity to refund customers in case of bankruptcy or hacking incidents.
According to the FSC, there are currently 63 crypto exchanges operating in South Korea, but only four of them have obtained a license to offer real-name accounts that are linked to customers’ bank accounts. The rest of the exchanges use anonymous or virtual accounts that are more vulnerable to money laundering and fraud.
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A major regulatory change is looming for the cryptocurrency industry in South Korea. The Financial Services Commission (FSC), the country’s top financial watchdog, has set a deadline of September 24 for all crypto exchanges operating in the country to register with the authorities and comply with the new rules. This deadline is part of the revised Act on Reporting and Use of Certain Financial Transaction Information, which was passed in March 2020 and came into effect in March 2021. The act aims to prevent money laundering, tax evasion, and other illicit activities involving cryptocurrencies, and to protect investors from fraud and scams.
According to the act, crypto exchanges must obtain an Information Security Management System (ISMS) certification from the Korea Internet and Security Agency (KISA), and partner with a bank that can provide real-name accounts for their customers. The ISMS certification is a standard that evaluates the security level of an organization’s information systems and management practices. The real-name account system is a measure that requires crypto users to verify their identity with a bank before they can deposit or withdraw funds from an exchange.
These requirements are intended to enhance the transparency and accountability of the crypto industry, and to align it with the global standards set by the Financial Action Task Force (FATF), an intergovernmental body that combats money laundering and terrorist financing.
However, meeting these requirements has proven to be a challenge for many crypto exchanges in South Korea, especially for smaller and mid-sized ones. As of August 27, only four exchanges have obtained both the ISMS certification and the bank partnership: Upbit, Bithumb, Coinone, and Korbit. These are the four largest exchanges in the country, accounting for more than 90% of the market share. The rest of the exchanges, which number around 60, are either still waiting for the ISMS certification, or have failed to secure a bank partnership. Some banks have been reluctant to work with crypto exchanges due to the high risks and costs involved, as well as the uncertainty over the future of the industry.
The FSC has made it clear that there will be no extension or grace period for the deadline, and that any exchange that fails to register by September 24 will face legal consequences. This means that unregistered exchanges will have to cease their operations or face criminal charges and hefty fines. Moreover, their customers will not be able to withdraw their funds or access their accounts after the deadline. The FSC has urged crypto users to check whether their exchange is registered or not, and to move their assets to a registered exchange or a personal wallet before September 24.
The deadline is expected to have a significant impact on the crypto industry and market in South Korea, which is one of the most active and vibrant in the world. According to a report by Chainalysis, a blockchain analysis firm, South Korea ranked third in the world in terms of crypto adoption in 2020, behind only Vietnam and India.
The report also estimated that South Koreans traded about $7 billion worth of cryptocurrencies in 2020, up from $600 million in 2019. The country has also been a leader in innovation and development in the crypto space, with various projects and initiatives involving blockchain technology, decentralized applications, non-fungible tokens (NFTs), and more.
The deadline may result in a consolidation of the industry, as only a few exchanges will survive and dominate the market. It may also lead to a loss of diversity and competition in the industry, as well as a reduction of choices and convenience for consumers. On the other hand, it may also improve the credibility and stability of the industry, as well as its compliance with international norms and regulations. It may also foster a more mature and responsible attitude among crypto users and investors, who will have to pay more attention to their security and risk management.
The deadline is a critical moment for the crypto industry in South Korea, as it will determine its fate and direction for the foreseeable future. It will also test the resilience and adaptability of the industry, as well as its potential for growth and innovation. The deadline is not only a challenge, but also an opportunity for the industry to prove itself as a legitimate and valuable part of the financial system.
The new regulation is expected to have a significant impact on the crypto market in South Korea, which is one of the largest and most active in the world. According to data from CoinMarketCap, South Korea accounted for about 4% of the global crypto trading volume as of August 28, ranking fourth after the US, China and Japan. Some industry experts and analysts have welcomed the move as a positive step to enhance consumer protection and trust in the crypto sector, while others have expressed concerns that it may stifle innovation and competition among smaller players.