South Korea’s financial regulatory body – the Financial Commission Services – has ordered all crypto exchanges to register with the Korea Financial Intelligence Unit (KFIU).
The FSC warned it would get tough earlier this year, giving exchanges a deadline of September 24 to register. With just two days to comply, 40 exchanges remain unregistered and may be forced to suspend trading services while a further 28 have registered but have yet to secure bank partnerships.
Upbit, Bithumb, Coinone and Korbit are the only exchanges to be fully registered and are set to continue trading following the deadline. Regulation includes certification to prove exchanges are resistant to security issues.
The potential suspension could have a dire impact on South Korean cryptocurrency traders as losses up to $2.3bn (Won3tn) are reportedly expected.
According to Kim Hyoung-joong – a professor and head of the Cryptocurrency Research Center at Korea University – 42 kimchi coins are set to be wiped out if exchanges are shut down.
Lee Chul-yi, head of the exchange Foblgate, anticipates problems ahead for the crypto sector.
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of ‘alt-coins’ listed only on small exchanges,” he explained.
“They will find themselves suddenly poor. I wonder if regulators can handle the side-effects?”
While cryptocurrency transactions are currently tax-free in South Korea, the Ministry of Strategy and Finance has indicated it will begin taxing on crypto income in 2022 as a source of revenue to cover rising welfare costs.
All crypto trading services must upgrade their AML/KYC (anti-money laundering/know your client) systems and must set up a corporate bank account where they will provide consumers with real-name accounts with the same financial institution.