Sept. 24 is the last day crypto exchanges in South Korea are given to submit a business report proving their full commitment to new regulations formulated by the Financial Services Commission (FSC) earlier in March. The rules are designed to improve investor protection and transparency in crypto transactions, but many exchanges have been calling for a longer grace period.
In the five months since the enactment of the new regulations, only Korea’s largest exchange by market capitalization Upbit has successfully submitted the required report. It has met the two major requirements — acquiring an ISMS (Information Security Management System) certification and a bank contract to provide users with real-name withdrawal and deposit accounts for safer and more transparent transactions.
Upbit had already secured both the ISMS certification and a bank contract with K-Bank even before the enactment of the new regulations in March that gave exchanges a six-month grace period. Small to medium exchanges, however, face a much more difficult situation, as many rushed to prepare for the two requirements from March. The ISMS certification process itself takes three to six months. South Korean banks remain reluctant to be affiliated with crypto exchanges for the possibility of being involved with financial crime that took place occasionally within the crypto space in the country.
Be that as it may, many smaller exchanges still push forward in the hopes of crossing the finish line set by the FSC. Aprobit, with a trading volume of around US$1.3 million in the last 24 hours according to CoinMarketCap, announced Sept. 2 that it is undertaking a massive recruitment plan across all departments — including compliance, marketing, business development and management. By adding more manpower, Aprobit says it will focus on enhancing its Anti-Money Laundering (AML) capabilities, which is set as one of FSC’s priorities for reviewing crypto exchanges. Its recruitment plan can be regarded essentially as a stronger commitment to abide by the financial regulator’s requirements.
GOPAX, another medium-sized exchange in Korea, recently closed down its PRO Market, delisting 26 types of tokens that were listed on that market. These tokens yielded revenue three times the price change. In its notice on the website, it attributed the closure directly to the new crypto exchange regulations, as it was concerned that the PRO market is not suitable in meeting the regulations as the FSC wants to eliminate high-risk or speculative investments.
Bithumb, CoinOne and Korbit, respectively the second, third and fourth largest exchanges in Korea, joined forces to form a joint venture on Aug. 31 named CODE — dedicated to combat money laundering. The three exchanges had previously operated with bank contracts providing real-name accounts. However, their affiliated banks have not yet confirmed that they will continue working with the exchanges past the Sept. 24 deadline.
Some exchanges have taken a more direct hit from the strict new regulations. CoinBit recently had to close the corporate bank account on Shinhan Bank it had utilized for its users to deposit Korean won in exchange for crypto. This came after Shinhan Bank sent a notice to CoinBit declaring the suspension of financial services with the exchange, as the new regulations forbid crypto exchanges from receiving cash deposits via one corporate bank account due to risks of money laundering or embezzlement. Nevertheless, CoinBit told its users that it will still pursue obtaining the mandated bank contract.
Many others have admitted defeat to the rigorous new standards. DayBit and BorntoBit’s exchange website has completely shut down. Coin2X and WannaBit’s websites only show instructions for users in withdrawing their deposited cryptocurrencies.
Meanwhile, the conservative People Power Party lawmakers Yun Chang-hyun, Jo Myung-hee and Lee Young have all individually spearheaded a proposal calling for a longer grace period for exchanges in meeting the requirements, some asking for a six-month pushback. An official from Korean exchange COREDAX told Forkast.News that it is hard for the exchange to anticipate the outcome of these proposals while they keep their fingers crossed.
One industry expert told Forkast.News in an interview that the financial authorities may give exchanges a little leeway. “There might be a dramatic turn of events in that there’s actually a pushback of the deadline, although it may not be as lengthy as six months,” said Oh Moon-sung, professor of tax and accounting at Hanyang Women’s University. He added that the government may not want Upbit, the only successfully registered exchange, to dominate the market.
On the other hand, Oh raises concern about investor protection, in case many exchanges close down after failing to meet the deadline in September. “The FSC is advising people to move their crypto into safer, certified exchanges before the deadline. That makes no sense. There should also be a grace period for investors to move their deposited cryptocurrencies in case their exchanges decide to close down after the Sept. 24 deadline.”