A further tightening of cryptocurrency regulation in South Korea is underway, with new rules for banks and crypto exchange operators.
New rules announced by South Korea’s Financial Services Commission, or FSC, are expected to affect around 60 unauthorized cryptocurrency exchanges in the country and a new policy for banks will require that they classify any crypto exchange clients as “high risk.”
According to the Korea Times, the new guidelines were announced on Sunday and are intended to ensure that crypto exchanges strengthen their monitoring of transactions and uphold strong user ID requirements. Until now, only the four largest exchanges in South Korea have set up real-name accounts that have been cleared by banks. The FSC is justifying its measures by noting that there is high demand from customers for more protection for their assets held at smaller cryptocurrency exchanges.
Exchanges’ ability to operate under the radar will come to a close in September, with the FSC’s deadline for exchanges to submit requests for an operating license by the 24th of that month. After the submission, financial intelligence officials will scrutinize applicant crypto exchanges’ trading activities for a review period of three months. A particular focus will reportedly be preventing the use of borrowed or fake accounts to make transactions on exchange platforms.
For their part, banks will have to refuse their services to any exchange client that fails to comply with ID verification measures and to report suspicious activities, e.g. large transfers made to crypto exchange operators from unidentified accounts, to the Korea Financial Intelligence Unit.
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The Korea Federation of Banks and several commercial lenders have appealed to the FSC to reduce their liabilities for financial crimes on crypto exchanges, which could increase as the exchange sector is brought under greater regulatory oversight. Some institutions are concerned that their vetting and acceptance of particular crypto exchanges could be cited by investors as the basis of platforms’ trustworthiness. An industry official told reporters:
“Banks are essentially forced to take responsibility for issuing real-name accounts. It therefore is reasonable that there should be some immunity for undertaking the dangerous and costly task.”
It’s not only banks that have been vocal about the incoming changes to regulation of the sector. In recent weeks, small and medium-sized exchanges in South Korea expressed their concerns at a meeting with financial regulators, emphasizing the costly bank service fees that make partnerships prohibitively expensive for smaller businesses.