The South Korean Financial Services Commission has banned cross-trading on crypto exchanges in the country.

The move is part of a series of changes to the country’s law on the reporting and use of certain financial transaction information.

Cross-trading, an illegal practice in many jurisdictions, involves offsetting buy and sell orders for the same asset (at the same price) without recording the transaction in the order book.

However, according to a report by local media company Newsis, exchange operators in South Korea complained about the proposed ban, saying the move would significantly disrupt their already strained operations.

According to some South Korean crypto exchange operators, the proposed move would stifle the flow of money into their platforms.

According to reports, exchanges in South Korea are crossing trades to allow them to convert fees charged in crypto into Korean won. An industry representative commented on the practice to Newssis:

“To convert the cryptocurrency received as a fee into KRW, you have no choice but to sell the cryptocurrency at your place of business.”

A ban on cross-trading would theoretically prevent platforms from converting these fees from crypto to fiat currency. Indeed, the proposed ban could mean mandatory zero-commission trading, which would remove the revenue from trading fees.

According to the anonymous source, South Korean crypto exchanges will be forced to start a new business to convert trading fees into fiat currency. However, such a move would have significant cost implications, as the country’s anti-money laundering policies would make such a company expensive to operate.

Aside from impacting foreign exchange earnings, the move could also present significant tax payments challenges. In fact, withholding tax is levied on exchange trading fees, which means platforms must find funds to convert fees received in cryptocurrency into fees won, as taxes in South Korea cannot be paid in cryptocurrency.

As a stopgap measure, crypto exchanges in South Korea could be forced to use the fee payments received in cryptocurrency as collateral to obtain credits for withholding tax payments.

The FSC has reportedly not been discouraged by criticism of the exchanges, as cross-trading is a “conflict of interest”. According to the FSC, exchange operators have access to inside information and the ability to trade against customers could lead to price manipulation.

On the subject of how exchanges will handle fees charged in crypto, the commission stated, “Whether you want to convert the cryptocurrency into another asset (other than earned) or keep cryptocurrency, you have to find a solution yourself.”

As Cointelegraph previously reported, the FSC recently held a meeting with 20 crypto exchanges in the country. At the meeting, several small and medium-sized platforms made the Commission aware of the difficulties in carrying out its operations.

Aside from the ban on cross-trading, the upcoming changes will also mean that exchanges will be required to hold at least 70% of customer deposits in cold wallets. The provision is reportedly part of countermeasures against crypto exchange hacking, with the FSC planning to investigate previous attacks to uncover possible insider involvement.