In accordance with the “Act on the Reporting and Use of Specific Financial Transaction Information (Special Act)” crypto exchanges are required to be Information Security Management System (ISMS)-certified and register with the South Korean Financial Intelligence Unit (FIU) by Sept. 24. Crypto exchanges that fail to comply with either of these requirements must cease operations by that date.
A tough environment for cryptocurrency exchanges
Recently, crypto exchanges were given a deadline to implement new regulatory measures by the country’s financial regulators. The suspension of services is likely to affect over 60 exchanges this week alone. According to local media, 34 exchanges have not received ISMS certification, so they are expected to shut down entirely on Sept. 24.
The country has 29 crypto exchanges that have been ISMS-certified, but only one has been registered with the Financial Intelligence Unit (FIU), a unit of the FSC, its primary financial regulator. The Financial Intelligence Unit held its first crypto business review meeting Friday to review the report submitted by Dunamu Inc., the operator of Upbit, the largest crypto exchange in the country. The review committee accepted the report, making Upbit the first licensed crypto exchange operator in the country.
KYC/AML compliance is one of the factors driving this new regulation. Since South Korean authorities insist that exchanges improve the processes attached to this, the exchanges’ operations have been upended. It is one of those regulating the market most aggressively.
Further, the FIU revealed that four more cryptocurrency exchange operators have submitted a report besides Upbit: Bithumb, Korbit, Coinone, and Korea Digital Exchange (Flybit). In addition, a wallet operator, Korea Digital Asset (KODA), has also submitted a report. The FSC said “Considering that there is one week left until the 24th, virtual asset providers who have not yet filed a report should file a report promptly.”
Furthermore, crypto exchanges with real-name verified accounts must partner with banks if they want to offer trading services in Korean won. As of now, only Upbit, Bithumb, Coinone, and Korbit are partnering with banks. Banks are reluctant to partner with smaller exchanges due to risks such as money laundering. Therefore, 25 out of the 29 crypto exchanges that have achieved ISMS certification will only offer crypto products if they register with the FIU. As required by financial regulators, they are required to cease trading in Korean won by Sept. 24.
Out of 63 crypto exchanges, only the top four will continue to operate normally. The rest of the services will be reduced or shut down. Despite the heavy regulations coming into place, the market in the country remains strong. The number of cryptocurrency transactions reported by banks increased by 100%, which could only mean the industry is growing.