The deadline for South Korean crypto exchanges to meet the new requirements of local regulators is fast approaching, with all operators expected to apply for an official license to the Financial Services Commission (FSC) by September 24 at the latest.
New requirements from South Korean regulators will destroy most crypto exchanges
Representatives of the sector and operators of smaller exchanges have questioned the new requirements for most of last year, but without success. People familiar with the situation now reportedly expect that almost 40 of the country’s estimated 60 crypto exchange operators will be forced to close down.
At the heart of their objection was the obligation for all exchanges to open real-name accounts with South Korean banks. The FSC justified this by claiming that there was a high demand from customers for greater protection of their assets held on smaller crypto platforms. Nevertheless, South Korean banks have largely refused to engage in any risk assessment process for applicant exchanges, with the exception of the country’s four largest trading platforms.
These four exchanges – Upbit, Bithumb, Korbit and Coinone – already account for more than 90% of South Korea’s total trading volume, and experts have said in recent months that the new FSC framework is poised to make the country’s cryptospace a monopolized market.
In addition, estimates by Kim Hyoung-joong, a professor and director of the Cryptocurrency Research Center at the University of Korea, predict that the mass closing of exchange will remove 42 “kimchi coins” – a nickname for smaller altcoins that appear on smaller platforms against which Korean won is traded.
Estimated that altcoins account for 90% of trading volume in South Korean cryptocurrencies, the FSC has reportedly advised those exchange operators expecting to close down to inform their clients no later than September 17. Cho Yeon-haeng, president of the Consumer Federation, argued that customer protection was unlikely to be a priority for those exchanges facing immediate closure, and “huge investor losses” are expected due to assets freeze and suspension of trading on smaller platforms.
Regulatory steps will also affect international exchanges. The FSC has sent notifications to 27 foreign crypto exchanges that operate operations for Korean traders. Binance, the world’s largest crypto exchanges, suspended its won-to-crypto trading service last month to “proactively comply with local regulations.”
The Korean won the third most used currency for trading in BTC, after the dollar and the euro.
The new measures were designed to curb Koreans’ enthusiasm for cryptocurrency trading over concerns that retail investors, especially the younger generations, are over-borrowing to trade because they are struggling with low wages, a frozen labor market and rising real estate prices.