It’s been three weeks since South Korea’s Financial Services Commission (FSC) released a “death note” for cryptocurrency exchanges, which declared that two-thirds of existing exchanges will perish after Sept. 24, the given deadline for exchanges to comply with the FSC’s regulations.
With around 10 days left until the fateful day, the FSC issued an updated list of 28 exchanges that complied with at least one of the crypto regulations. This means that seven more exchanges managed to rush to the finishing line. The FSC’s press release says releasing the information will help the public to distinguish safe virtual asset operators from the unregistered, and minimize the damage ahead of the closures of multiple exchanges. The press release also says it is very likely the number of surviving exchanges will stay at 28, considering the time left until the deadline.
These 28 exchanges have successfully obtained the Information Security Management System (ISMS) certification from the Korea Internet & Security Agency (KISA). The certification validates that a crypto exchange has adequate capabilities in safeguarding a user’s personal information.
However, only four out of the 28 exchanges — Upbit, Bithumb, CoinOne and Korbit — have fulfilled the FSC’s second requirement, which is 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.
Initially, the FSC had mandated crypto exchanges meet both requirements to remain in operation after Sept. 24. But due to a heavy backlash from industry members and lawmakers, the FSC decided that exchanges that have successfully attained the ISMS certification will be exempted from business suspension. Nevertheless, the FSC gives them one condition: to run services without supporting the Korean won cash-to-crypto services.
Exchanges complain that running business solely on token-to-token services has no business feasibility, adding that exchanges without the cash-to-crypto functions will soon be marginalized and possibly shut down. Thus, those exchanges remain keen on finding a bank to provide their users with real-name accounts.
Meanwhile, major banks in South Korea have openly expressed their hesitation to be affiliated with virtual asset exchanges. The banks view the partnership as prone to the risks of being involved in financial crime such as money laundering and embezzlement. On top of that, the FSC maintains banks will be held as responsible for any encounters with the law made by their partner exchanges. For major, established banks, there lies more risk than profit.
Still, hope remains for these exchanges trying to win bank contracts. A few regional banks have been reported to be reviewing partnerships with smaller crypto exchanges to expand their pool of customers from regional to nationwide. The affiliation with a crypto exchange could possibly bring the younger investors to regional banks, where its main customers are traditional investors.
Multiple local reports say that Jeonbuk Bank, Kwangju Bank and Jeju Bank are examining business ties with virtual asset exchanges. Coredax, one of the exchanges actively seeking a bank contract, told Forkast.News in a written response that “[Coredax] also has a local bank that we are currently discussing with.”
Originally, only Upbit, Bithumb, CoinOne and Korbit, the four exchanges regarded as major, were expected to survive the rigorous regulations and into their league of competition. Now it seems possible that more may be entering the arena.