Among 63 crypto exchanges in South Korea, only four are expected to survive the country’s new standards for virtual asset businesses. Despite repeated requests for more prep time from industry executives and lawmakers, financial authorities ordered exchanges that have not met the requirements to announce their own closures by Sept. 17, a week before the actual regulatory deadline of Sept. 24.
The new requirements for crypto exchanges were stipulated in the revised Act on Reporting and Use of Certain Financial Transaction Information. The act, enacted on March 25, gave virtual asset exchanges a six-month grace period to follow the requirements.
Under the act, the Financial Services Commission (FSC) set two major requirements. The first is obtaining the Information Security Management System (ISMS) certification, which proves the capability of a business in protecting users’ personal information. The second requirement is securing a partnership with a local bank in Korea to provide crypto exchange users with withdrawal and deposit bank accounts under their real names. This is to lower the risk of crimes such as money laundering, embezzlement or price manipulation.
Getting the ISMS certification itself cost exchanges time and money; some exchanges testified that preparing for the ISMS certification cost around US$250,000. In addition, the application process to receive the certification takes three to six months. With seven days before the deadline, 28 exchanges have acquired the information security certification while 35 exchanges have failed to do so. The 35 businesses will be shut down by next Friday.
Out of the 28 exchanges that have received the certification, only four exchanges — Upbit, Bithumb, CoinOne and Korbit — have successfully partnered with local banks to provide users with real name bank accounts. “It is unlikely that the rest will be able to secure a bank contract in time,” said Kim Dae-jong, professor of business at Sejong University, in an interview with Forkast.News. “First of all, there are only a few working days left. And secondly, [the banks] have criminal and civil liabilities for [partner exchanges]. So they are very careful in reviewing partnerships.” The 24 exchanges without the real-name bank account contract were ordered to operate after deleting any Korean won-to-crypto functions.
Most exchanges have already made their final announcements. KDEX, CoinTong and Alibit are among the exchanges that have used their official webpage to notify their users of the suspension of entire services. These three exchanges also vowed they will reopen their services after acquiring the ISMS certification. Some other exchanges such as Darlbit and Daybit have announced complete shutdown.
Many exchanges with the ISMS certification but without the bank contract have announced the suspension of their Korean won-to-crypto services and opened token-to-token services instead. Coredax and Foblgate refurbished their won-to-crypto services into Bitcoin-to-altcoin, setting Bitcoin as the basic means of exchange. Meanwhile, wowPAX, Flybit and Probit have chosen Tether as their new means of exchange. These exchanges declared they will continue to pursue banks for the real-name bank account contract, in the hopes of restoring their Korean won-to-crypto functions.
Kang Seong-hoo, senior vice president of Korea Digital Asset Service Provider Association, says his association will help more exchanges return to the virtual asset market in a full-fledged form capable of providing won-to-crypto services. “When there are more exchanges in the running, the current virtual asset market in oligopoly will turn into a full-blown competitive market. Naturally, these exchanges will start differentiating and specializing their services. This will benefit consumers and also blockchain and crypto developers in Korea.”