Back in March, South Korea’s Financial Services Commission (FSC) gave crypto exchanges six months to meet its new regulations. That grace period ends in less than three weeks — on Sept. 24. Out of some 60 exchanges in the country, only one — Korea’s largest exchange, Upbit — has completed the compliance criteria of the FSC.

Many of the remaining exchanges are hanging at the end of the cliff. On Sept. 7, nine of Korea’s smaller crypto exchanges — Borabit, Aprobit, Coredax, Coin&Coin, Foblgate, ProBit, Flybit, Hanbitco and Huobi Korea — held a joint press conference. Several CEOs were present to issue what was dubbed an “emergency statement for normalizing the reporting of virtual asset exchanges.” The comments that followed their introduction were filled with either criticism against the financial authorities, or desperate pleas for survival.

The FSC gave virtual asset trading platforms two requirements to meet — obtaining an Information Security Management System (ISMS) certification and a real-name bank account contract. The first condition is a way for crypto businesses to prove they have adequate safeguards for protecting user information. The second condition mandates a crypto exchange attain a contract with a local bank so that customers can have withdrawal and deposit accounts in their real names. This requirement is intended to lower the risk of financial crimes such as money laundering or price manipulation.

The nine exchanges that participated in the press conference fall into a group of 20 exchanges that can be described to be in “crypto-purgatory.” 

The 20 exchanges currently hold the ISMS certification but have not secured contracts with the local banks. Initially, the FSC asserted that any exchange that fails to fulfill all the requirements by Sept. 24 will be closed down. However, after repeated requests from exchanges and industry members for an extension, the financial authorities have given the exchanges some headway. Crypto trading platforms that have the ISMS certification will be granted permission to operate past the deadline, but under one condition — they must delete all functions that support transactions between cryptocurrencies and the Korean won.

Exchanges are saying that operation without cash-to-crypto services is essentially the same as closing down. Do Hyun-soo, CEO of ProBit, asserted  the four major exchanges in Korea take up nearly 99% of total crypto trading market share. He adds that if only allowed to permit users in token-to-token transactions, the remaining exchanges other than the four major ones will inevitably close down.

The FSC took most of the blame for the current plight exchanges are in. An official from the Korea Blockchain Association pointed out: “It is the financial authorities who caused banks to become hesitant to even discuss signing the contract with exchanges. [It is because] banks were thrown responsibilities of reviewing and examining the exchanges.” 

The previous chairman of the FSC, Eun Sung-soo had repeated numerous times that banks will be obliged to assess virtual asset exchanges on anti-money laundering capabilities, and the level of risk of other financial crimes such as embezzlement or price manipulation. He also mentioned that the banks share the responsibilities of exchanges in case any of the illegalities do occur. Since Eun’s comments, bigger banks in South Korea such as KB Kookmin Bank, Hana Bank and Woori Bank announced that they will not be affiliated with crypto exchanges in the future. Even the banks that had previously provided real-name accounts became reluctant to prolong their relationship with the exchanges.

Exchange officials present at the press conference argued that the financial authorities should take measures to allow businesses that have yet to secure real-name account bank contracts to be allowed to continue operating in the existing way temporarily until their reports are completely reviewed. Officials also requested that they be allowed to supplement their requirements for the real-name account contracts during the examination period.

Meanwhile, a forum on diagnosing the damage that will be caused from mass closure of exchanges will be held Sept. 9, spearheaded by democratic party lawmaker Min Hyung-bae. In the press release ahead of the actual forum, Kim Hyoung-joong, president of the Korea Society of Fintech Blockchain, compared exchanges without cash-to-crypto functions to a “deformed stock exchange” where people cannot buy or sell stocks and are only allowed to exchange them. Kim further said, “This situation makes cryptocurrencies actually a scrap of tissue. In other words, the users’ investments will be worth nothing.”

Kim further criticized the financial authorities:  “Does it make sense for the government, which has a constitutional obligation to enrich people’s lives, to cause many to become beggars overnight by policy intervention? The government should quickly come up with practical protective measures for investors.”