Only ten cryptocurrency exchange companies have registered with the KFIU, while only four have additionally secured contracts with banks, which was the second requirement.
On Thursday, 23 September 2021, six Korean crypto exchanges, Five, Gdac, OK-BIT, Prabang, Flat Thai X made progress with regards to the regulatory compliance requirements set out by the Korean Financial Intelligence Unit, with a further 18 expected to file documents by Friday, September 24. If these are completed, it would take the tally to 28 registered exchanges. These 28 include what is collectively known as “The Big Four”, namely Upbit, Bithumb, Coinone and Korbit, who account for over 90% of crypto asset trading volumes in the country of South Korea. The Big Four have secured contracts with banks for real-name verification of accounts, and have received certification from the Korean Internet And Security Agency, meaning that their registrations were eligible for submission to the KFIU.
Under-resourced exchanges likely to be most affected
Certain security infrastructure was required from exchanges by the Korea Internet and Security Agency (KISA) to reduce money laundering risks. In addition, partnerships with local banks have to be secured, before approval is granted by the Financial Services Commission. Banks bear the risk if funds are used for financial crimes, so they have been reticent to partner with exchanges that do not have the resources to implement comprehensive anti-money laundering systems in line with KISA requirements. Industry experts have estimated that at least fifty exchanges will close down, or reduce service offerings, due to them not meeting all of the requirements.
Gopax, Huobi Korea and Gdac were unable to secure partnerships with any banks, and would have needed to cease operations by September 24, 2021, at midnight. Probit and Problegatr have already ceased operations. The Financial Services Commission urged investors to withdraw assets from exchanges before the compliance deadline, warning that they could be irretrievable if an exchange shuts down.
Fears over potential Korean ‘Crypto Monopoly’
These events pave the way for a potential lopsided monopoly of crypto services in Korea, meaning that any exchange could list or delist coins, or raise transaction fees at will, according to a Democratic Party member. Justin d’Anethan, head of sales at Eqonex, believes that the abundance of overseas exchanges, and the growth of decentralized exchanges mean that options for traders are increasing, not decreasing, and that regulations will legitimize the crypto space and clarify industry practices.
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