Members of the crypto industry in South Korea gathered at a forum today to claim that an estimated US$2.5 billion to US$8.5 billion in damages will be caused if the country persists in imposing strict new regulations. Officials from crypto exchanges and industry experts once again called on authorities for lenience, while some are considering turning to the courts.
The new regulations, disclosed back in March with a given grace period of six months, asks that a crypto business complies with two major conditions — obtaining an Information Security Management System (ISMS) certification and a real-name bank account contract.
The ISMS certification proves that crypto businesses have adequate measures for protecting user information. The bank contract requirement requires a crypto exchange to attain a contract with a local bank so that customers can have withdrawal and deposit accounts in their real names. The requirements are intended to lower the risk of financial crimes such as money laundering or price manipulation.
The four major exchanges of Korea — Upbit, Bithumb, CoinOne and Korbit — have fulfilled both requirements, with Upbit announcing full compliance in early August, while the other three have more recently revealed meeting the second requirement. According to data from CoinMarketCap that was disclosed at the forum, these four exchanges make up 91.5% of the total crypto market in Korea in terms of trading volume.
The four larger exchanges that managed to meet the second requirement had previously held contracts with local banks. Smaller exchanges, however, that have not been affiliated with banks of any sort, must meet the same requirement.
On top of that, the Financial Services Commission has repeated numerous times that banks will be held responsible for any mishaps related to money laundering or other sorts of financial crime at their partnered crypto exchanges. This made banks even more reluctant to sign any new contracts with smaller exchanges. Representatives from smaller exchanges say the regulations were constructed in a way that favors already established players.
The FSC did allow smaller exchanges some leeway, saying they can still have the chance to register as legitimate crypto businesses even without the bank contracts if the ISMS certification is secured. Nevertheless, there is one condition — the exchanges will operate only token-to-token transaction services, and eliminate any functions serving cash-to-crypto.
Do Hyun-su, CEO at ProBit, said this does not help small and midsized exchanges. “Token-to-token transactions have no business feasibility. It’s a temporary way to operate until exchanges earn the bank contract,” Do said. He asserted that it is important to acknowledge that smaller exchanges were not given a fair chance. “For instance, NH Nonghyup Bank notified its partner exchanges (Bithumb and CoinOne) to strengthen their anti-money laundering capabilities. When they did, the bank extended the contracts. Other exchanges did not get chances like that.” Do added, “When we ask banks for conditions and requirements [for the contract], none of them talked to us. Shouldn’t they at least tell us what we are lacking?”
Another industry member, Lim Yo-song, CEO of Coredax, insisted there needs to be more than just four exchanges in Korea. “Every exchange has different listings of cryptocurrencies. Consumers invest by looking at a cryptocurrency as one individual commodity. Soon, their chosen investments will suddenly disappear without any damage control measures,” Lim said.
Kim Hyoung-joong, head of the Cryptocurrency Research Center at Korea University, claimed that according to his research, there are 112 cryptocurrencies developed in South Korea. Sixty-eight of them are listed in the four major exchanges. Kim says that following through with the regulations will destroy the remaining 44 cryptocurrencies that existed in other exchanges, which will cause damage of approximately US$2.5 billion. This research, however, only counted cryptocurrencies that can be found on CoinMarketCap. Other exchange officials said 44 is only the tip of the iceberg, and said the mass closure of exchanges may cause US$8.5 billion in losses.
Professor Kim says the Korean authorities should follow Japan’s regulatory footsteps before causing irreversible damage. Kim told Forkast.News in an interview after the forum: “Japan took a more active role in registering crypto exchanges under its regulations. Currently there are 16 registered exchanges in Japan. Korea should allow a similar number of exchanges to prevent damages and form an ecosystem that encourages healthy competition.”
Meanwhile, an official from the Korea Finance Consumer Federation mentioned the possibility of a legal challenge against the government. He explained that the regulations hurt investors, token developers and exchanges that have not done anything illegal. The federation said that it will look into similar cases where innocent investors experienced damage, and will prepare a legal challenge if possible.