South Korea’s crypto market, the third-largest in the world by market capitalization according to Korea’s National Assembly Budgeting Office (NABO), is expected to see a major disruption as the country’s new regulatory deadline on Sept. 24 may cut away more than half of existing exchanges. Any exchange that fails to report to the Financial Intelligence Unit (FIU) proving compliance with a set of new regulations will face closure.
There are two requirements — obtaining an ISMS (Information Security Management System) certification and a bank contract to provide users with real-name withdrawal and deposit accounts for better protection of user information and more transparent transactions.
Out of some 60 operating exchanges in Korea, only the largest one, Upbit, has successfully acquired the ISMS certification and managed to secure its extended contract with K-Bank.
Even other major exchanges — Bithumb, CoinOne and Korbit — struggled to meet the second requirement, as banks expressed reluctance to be affiliated with crypto exchanges due to potential risks of involvement with financial crime.
But according to local reports, NH Nonghyup Bank, affiliated with Bithumb and CoinOne, and Shinhan Bank, affiliated with Korbit, are expected to finalize their decisions to extend their contracts with the exchanges. It is reported that the situation is being reviewed positively by the banks, as they have completed the risk assessments on these exchanges and are only waiting to land an agreement on Anti-Money Laundering (AML) measures. Industry experts are weighing in on the possibility that all four major exchanges, including Upbit, will operate lawfully after the deadline.
Meanwhile, smaller exchanges found difficulty and a lack of time even attaining just the first certification. As industry members and lawmakers called desperately for an extension, the FIU gave exchanges a breather — exchanges that have the ISMS certification will be allowed to submit a report to the authorities to be reviewed, so that not having the real-name bank account contract does not automatically mean shutdown for smaller exchanges.
But this is under one condition. Those exchanges must remove their Korean won transaction services by Sept. 17. Some experts say that exchanges operating without being able to service cash-to-crypto transactions are still not far from closing down. “Limited liquidity is a major disadvantage to crypto exchanges,” said Chun Chang-min, professor at Seoul National University of Science and Technology, in an interview with Forkast.News. “But moreover, there is already this stigma common investors have against these exchanges, they will be viewed as inferior compared to, say Upbit,” added Chun, who says it is likely that investors will move to a fully certified exchange regardless.
With less than three weeks until the deadline of this rigorous crypto exchange law, only 21 out of roughly 60 exchanges are expected to continue their services in Korea. The FIU has mandated that the exchanges facing shutdown need to notify their users at least seven days prior to business termination, through websites or mobile apps.