[Photo by Yonhap]

Almost four out of ten cryptocurrency exchanges in South Korea have yet to apply for state certification to protect information assets and will be closed as soon as new regulations come into effect next month.

On Wednesday, the Financial Services Commission released a list of cryptocurrency exchanges that may or may not have applied for information security management system (ISM) certification from the Korea Internet & Security Agency (KISA).

Of 63 crypto exchanges on the list of regulators, 38 percent or 24 exchanges have not applied for ISMS certification and could be forced to close immediately after the registration deadline on September 24th. However, most of them are in normal operation without informing their customers of the coin return policy when they shut down.

Any crypto exchange wishing to operate in Korea must obtain the Korean government backed certification, which serves as a standard for assessing whether companies and organizations are well equipped to manage their information security management systems to protect their information assets.

The Korean Financial Regulator released the list to encourage investors to take precautionary measures such as withdrawing deposits or coins before the registration deadline to avoid harm.

As exchanges inevitably face business restrictions or closings if they fail to meet the new regulatory guidelines, they continue to operate as usual without warning to investors, an unnamed FSC official said.

The regulator added that even some of the exchanges that have already applied for ISMS certification may not get approval by September 24th.

The police are investigating medium-sized crypto exchanges such as V Global and BitSonic, which have already applied for ISMS certification, for illegal activities. They are expected to be denied permission.

Certification is based on a rigorous assessment of 104 categories in 18 sectors related to data management. It takes three to six months to get certification after application and costs hundreds of millions of won to get the system in place.

Worse still, no other crypto exchange except Upbit has been promised real-name banking support. If they fail to secure bank accounts, crypto exchanges cannot offer coins in won denomination and offshore-backed tokens like Bitcoin.

Exchanges banned from trading won-denominated would be hit hard as the won-denominated market is more than 10 times larger than the regular coin market in terms of trading.

Financial regulators warn that crypto exchange fraud is growing ahead of the new, stricter rules for virtual coin trading.

The authorities conducted a special inspection of illegal coinage activities from April 16 to July 31 and found that 520 people had been involved in 141 unlawful cases. One of the cases involved a scam group who tricked 50,000 investors into investing in coin exchanges for excess profits. You are cheating 2.2 trillion won ($ 1.9 billion) in funds.

By Yoon Won-sup, Han Sang-hun, and Lee Eun-joo

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