- South Korea’s financial regulator has set a new deadline for exchanges in the country to register as legal trading platforms.
- Local exchanges are struggling to meet the conditions set out by the financial watchdog.
- The country’s crypto traders will be bracing for losses of over $2.6 billion in kimchi coins.
South Korea’s Financial Services Commission (FSC) has set a deadline for overseas and local crypto exchanges to register as legal trading platforms. While the country aims to tighten regulations on the digital asset sector, nearly two-thirds of all exchanges are expected to be shut down.
$2.6 billion in crypto to be wiped out
South Korea’s financial regulator set a deadline for foreign and local crypto exchanges to register as legal trading platforms by the end of September. However, most local exchanges are struggling to meet the conditions set out by the regulator. This could result in nearly 40 crypto exchanges being shut down by September 24.
Currently, the country’s crypto trading industry is dominated by four major exchanges including Upbit, Bithumb, Korbit and Coinone. These platforms account for over 90% of the country’s total digital asset trading volume.
According to Kim Hyoung-Joong, a professor and head of cryptocurrency research and Korea University, smaller exchanges could potentially be shut down and could put an end to kimchi coins. These are alternative digital assets that are listed on local crypto exchanges and mostly traded in the country’s native currency, the Korean won.
For crypto exchanges to qualify as a legal trading platform, the firms must work with local banks to open accounts in real-name for customers. Local banks have been hesitant to do so due to fears of being exposed to illicit activities including money laundering.
So far, around 20 exchanges have met some of the conditions set out by the financial watchdog by enabling systems for collecting personal information to allow crypto trading on the platforms. However, industry insiders believe that these operators would still struggle to survive in the industry, given the limited size of their businesses.
Cho Yeon-haeng, the president of Korea Finance Consumer Federation said that huge investor losses are expected, trading would be suspended. At the same time, crypto assets would be frozen at various smaller exchanges.
Should the crypto exchanges be unable to meet the new requirements before the deadline, the FSC advised digital asset firms to inform their customers of potential closure before September 17. If any virtual asset service providers continue to operate in the country without proper registration, responsible parties will face up to five years of imprisonment or a fine of up to roughly $43,500.
The crypto exchange subsidiary of Japanese tech giant LINE has reportedly been limiting its services in South Korea. LINE could be one of the first of potentially many foreign digital asset exchanges that have decided to halt or limit services in the country.
The South Korean government has continuously cracked down on cryptocurrency exchanges with extensive restrictions set on cross-border remittances involving cryptocurrencies to prevent money laundering.
This comes after many reports of a suspicious increase in bank transactions from South Korea to China. The FSC believes that this was due to the emergence of the Kimchi Premium seen earlier this year, which led to certain Chinese investors to look for cross-border arbitrage opportunities.