Sandbank, a South Korean bank for virtual assets, says it is in the process of acquiring the necessary certification needed to legally operate in the country. However, the financial authorities have yet to decide whether their requirements apply to crypto banks.
Fast facts
- In an announcement, Sandbank told its customers it has put acquiring the Information Security Management System (ISMS) certification as top priority. The ISMS certification is a requirement for virtual asset companies to become a legitimate business operator to Korea’s Financial Services Commission (FSC). Sandbank has already applied for the certification and is waiting to be examined.
- Korea’s financial authorities have not clearly defined whether virtual asset banks, which pay interest on a deposit of virtual assets, are subject to the new requirements.
- Paik Hoon-jong, the COO of Sandbank’s developer DA:Ground, told Forkast.News: “The lack of authoritative interpretation of what a virtual asset bank is has put Sandbank under a lot of misunderstandings and criticism. But we are trying to meet the government’s requirements for legitimate [virtual asset] operators.”
- Meanwhile, the FSC’s deadline for crypto exchanges and operators to meet the new regulatory requirements is less than a month away. A virtual asset business that fails to comply with the regulations after Sept. 24 is at a high risk of closing down.
- The FSC’s revised Act on Reporting and Use of Certain Financial Transaction Information, otherwise known as the crypto exchange law, came into force on March 25 this year. With an objective to bring forth better investor protection and transparency in crypto transactions, the act gave virtual asset operators six months to comply with certain requirements. The ISMS certification is its first condition, intended as a way for crypto businesses to prove they have sufficient safeguards for protecting user information. The new regulation also requires crypto exchanges to acquire bank contracts so that customers could have withdrawal and deposit accounts in their real names, to lower the risk of crimes such as money laundering or price manipulation. The act also mandates that executives of a virtual asset operator not have any financial crime-related charges in their background within the past five years.
- While 20 out of 79 crypto exchanges in South Korea have obtained the ISMS certification, only four — Upbit, Bithumb, CoinOne and Korbit — holds bank contracts. Moreover, only Upbit succeeded in having K-Bank, its partner, extend the bank contract and registered to the FSC. Other exchanges are still experiencing difficulty with compliance, as some banks are not willing to sign contracts out of fear of involvement or liability in case there are crypto-related crimes. Several major banks — including KB Kookmin, Hana and Woori Bank — have declared that they would not be affiliated with crypto exchanges. As a result, many smaller exchanges such as Allbit, Darlbit and CPDAX, have shut down, citing the new regulations as the reason.