The crypto sector in South Korea is witnessing one of the most significant transformations in its history. Between crypto exchanges and regulatory bodies, the last four years have been a turbulent tempest. Finally, in 2021, the government has laid down its foot. What happens next will determine whether South Korea’s crypto legacy is made or broken.
South Koreans are amongst the biggest players during the 2017 crypto boom, according to individuals who only got into it this year. Despite accounting for fewer than 1% of the global population, they were responsible for 30% of the crypto trading volume in the same year
According to Cindicator, a fintech business at that time, the boom came with its own set of terms and conditions, and the consequences are still being felt today. And there’s a lot riding on these trades going wrong.
Being anonymous isn’t an option, to trade in South Korea – The South Korean authorities decided to prohibit the use of anonymous accounts in cryptocurrency trading after the crypto boom rocked the peninsular country in 2017. While cryptocurrencies were not considered legal tender, trades were authorized and subject to rigorous regulation. However, just because an account is no longer anonymous does not imply that the identity created is genuine. The Financial Services Commission (FSC) increased reporting rules for banks with cryptocurrency exchange accounts in 2018.
A new legislation established the idea of “real-name bank accounts,” which helps to set up a trader’s unique and verifiable identity, therefore indirectly assisting in the prevention of money laundering and other illegal actions. Furthermore, traders can only really engage with crypto dealers who utilize the same bank, putting the burden of proof on both banks and exchanges to authenticate client identities.
You can’t just open a crypto exchange; you’ll need permission from a number of different agencies. The Act on the Reporting and Use of Specific Financial Transaction Information was revised in March 2020. It made all crypto exchanges in the nation subject to mandatory anti-money laundering and counter-terrorist financing (AML/CTF/KYC) requirements. In order to continue operating, crypto exchanges would need a licence from the Financial Intelligence Unit of the FSC.
As a result, rather than being reactive, the process of detecting illegal behaviour becomes proactive. Authorities can keep a close eye on questionable transactions without having to go through the hassle of requesting data from exchanges after a crime has been detected. Exchanges must also obtain a certificate for an Information Security Management System (ISMS) from the Korea Internet & Security Agency (KISA).
Despite the fact that these policies have been in place since 2018, the South Korean government has now declared them obligatory. The regulations went into effect in March 2021, with a six-month transition period ending in September 2021. As a result, crypto exchanges must now decide whether to drown or float. If they don’t comply, they’ll have to close down or relocate out of the nation to stay in business. Not following the new rule can result in a five-year jail sentence or a fine of 50 million Korean won (about $43,000 or 32 lakh) – neither of which is an appealing prospect.
Financial institutions hold the key to allowing their consumers to trade on crypto exchanges, and they are now hesitant to do so for fear of being implicated in money laundering. K Bank, NH Bank, and Shinhan Bank are now evaluating the ‘big four’ — UPbit, Bithumb, Coinone, and Korbit. Smaller exchanges and affiliated companies, on the other hand, are stuck in limbo. South Korean cryptocurrency exchanges may pursue legal action.
“We are facing an existential crisis. We want to legitimize our business, but banks are reluctant to offer us real-name accounts,” Lee Chul-ie, the CEO of cryptocurrency exchange Foblgate said. For these smaller businesses, the legislation creates a new black and white, forcing them into the grey.
According to The Korea Herald, crypto exchanges with an excessive number of currencies may be refused real-name accounts. Commercial lenders are asked to designate exchanges with “a high number and frequency of virtual money transactions” as high risk, according to the study. The regulation is in place to prohibit the usage of altcoins that are frequently used to defraud investors or have no intrinsic value.
It’s one of the first countries to establish a comprehensive structure that balances reality with future promises, as the rest of the globe waits to see how it all plays out.