A logo of Bithumb, one of the largest cryptocurrency exchanges in Korea [NEWS1]
Many small cryptocurrency trading platforms may have to cease operations as soon as local banks are reluctant to issue real bank accounts for smaller exchanges.
According to the Financial Services Commission (FSC), all companies involved in the exchange, storage and management of virtual assets must report a change in the Law on the Reporting and Use of Specified Financial Transaction Information to the Korea Financial Intelligence Unit (KoFIU). . The change, which comes into effect on March 25, provides for a six-month grace period for exchanges.
In order to report to the KoFIU, the local exchanges need to find banks willing to create real accounts for their clients using virtual assets. Exchanges that do not do this will eventually have to be closed, as investors who use exchanges that are not registered with the KoFIU are prohibited from conducting transactions with financial companies and banks. This prevents users from transferring money from individual bank accounts to exchanges and vice versa, thus preventing cryptocurrency purchases and withdrawals.
This is the first law that details the requirements for trading virtual assets, with virtual assets being cryptocurrencies. Typically, the government aims to prevent money laundering related to crypto and other illegal activities.
Korea’s four largest cryptocurrency exchanges – Bithumb, Coinone, Upbit, and Korbit – have worked successfully with banks, but around 100 smaller exchanges are struggling. The unregistered exchanges only have five months before they have to close.
In order to create authenticated bank accounts with real names for investors of virtual assets, the exchange must first be made with banks. The banks then assess possible risks, security standards and the business structure of the exchange and decide whether to issue real accounts for their crypto traders.
With banks now having a responsibility to vet various exchanges, they are reluctant to take the risk and issue real cryptocurrency trading accounts. The government also announced on April 18 that it intended to tackle all illegality related to cryptocurrencies, including money laundering and fraud, in an effort to put even more pressure on banks.
“If a mishap occurs at partner exchanges, it is possible that the bank will also be held responsible, even if it has to compensate for damage,” said a spokesman for a local bank, who spoke on condition of anonymity. “Banks have no choice but to take a very conservative approach.”
The spokesman added that many exchanges, with the exception of the large ones that already have partner banks, will have to close at some point.
Smaller exchanges have difficulty negotiating banking partnerships. Their biggest problem is that there is no single standard for banks to assess whether the exchanges have adequate anti-money laundering technology or security standards. Every bank has different requirements, which makes it difficult for the exchanges to meet the different criteria.
“We have the necessary technology to prevent money laundering, which is the main point of the new law, but the financial authorities do not provide thorough evaluation guidelines,” said a spokesman for a small cryptocurrency exchange, also on condition of anonymity. “We will try to work with banks to the best of our ability and are ready to even negotiate with provincial banks if necessary.”
FROM A BLOOD ONE [lee.taehee2@joongang.co.kr]
