South Korea’s small crypto exchanges face increasing regulatory heat

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Authorities successful South Korea are continuing to suggest and enact measures aimed astatine maintaining strict oversight implicit the nation’s crypto speech market. These travel amid a important uptick successful cryptocurrency trading volume, particularly for altcoins.

In May, South Korea’s Financial Services Commission (FSC) announced that the authorities is readying to enforce stricter regulatory policies connected cryptocurrencies successful general. This determination comes arsenic virtual plus work providers (VASPs) person been fixed until September to registry with the due authorities authorities.

Crypto exchanges successful South Korea were already nether unit adjacent earlier this caller acceptable of stricter regulatory policies. The request for real-name trading accounts has seen smaller- and medium-sized exchanges scramble to unafraid licenses from commercialized banks to nary avail, astatine slightest arsenic of the clip of writing.

Recently, reports person emerged of different argumentation determination from South Korean authorities that could person far-reaching ramifications, adjacent for the “Big Four” crypto exchanges successful the state — Bithumb, Coinone, Korbit and Upbit.

FSC shines spotlight connected transverse trading practice

As antecedently reported by Cointelegraph, the FSC is readying to prohibition transverse trading connected crypto exchanges successful the state arsenic portion of a raft of stricter regulatory measures for trading platforms. Cross trading is simply a method utilized by trading desks to offset bargain and merchantability orders for the aforesaid plus without signaling the transactions connected their bid book.

Cross trading, portion amerciable successful galore countries, is successful immoderate ways a indispensable signifier for crypto exchanges successful South Korea. For one, crypto trading successful the state is denominated successful Korean won, but fees are collected successful cryptocurrencies.

Cross trading offers a solution for South Korean crypto exchanges, allowing them to person trading fees to Korean won by performing the conversion close connected their platform. With the FSC banning the practice, these exchanges whitethorn present person a hard clip realizing the important gross watercourse that comes from collecting trading fees.

Indeed, the archetypal responses from immoderate manufacture commentators to the planned determination are that a transverse trading prohibition would service arsenic a gross chokepoint for South Korean crypto exchanges. The FSC’s ban, if passed, would mean mandatory zero-commission trading by platforms successful the country.

South Korean crypto exchanges complaint 0.05% connected mean arsenic trading fees. This means that successful the archetypal 4th of 2021, Upbit raked in astir $9 cardinal successful fees regular from a 24-hour turnover of astir $17.9 billion. Indeed, the sizable surge successful South Korea’s crypto trading measurement successful 2021 has meant greater interest gross for platforms.

As aboriginal arsenic February, Bitcoin (BTC) turnover for some Bithumb and Upbit was already upward of 11 times greater than the figures recorded for the aforesaid play successful 2020. Earlier successful June, Cointelegraph reported that slope relationship flows for exchanges successful the state were up 40% implicit the past year.

The gross maturation for South Korean crypto exchanges has adjacent had a trickle-down effect connected banking partners and investors. Upbit’s superior banker, K Bank, enjoyed a crisp turnaround successful its fiscal performance and is reportedly targeting 2022 for an archetypal nationalist offering.

While Bitcoin fever characterized the aboriginal crypto trading mania of 2021, the inclination pivoted to altcoins arsenic the twelvemonth progressed. With token prices surging parabolically up until May, South Korean crypto traders seemed to favour smaller-cap altcoins.

Such was the grade of the altcoin trading mania that the Korea Federation of Banks warned of the trend’s imaginable risks. At the time, the bid books of adjacent the Big Four showed BTC trading enactment accounting for little than 5% of their 24-hour trading activity, which was importantly little than the planetary mean for Bitcoin connected different platforms.

None of our business, says the FSC

As is often the lawsuit with regulatory measures successful South Korea, the smaller exchanges mightiness look importantly greater operating difficulties if the FSC’s transverse trading prohibition becomes law. Assuming that platforms volition beryllium loath to forgo the gross from trading fees, South Korea’s cryptocurrency exchanges volition person to travel up with an alternative.

The astir probable alternate would beryllium to make a abstracted trading table dedicated to converting crypto trading fees to Korean won. However, immoderate caller crypto trading-related task successful South Korea indispensable beryllium registered with FSC’s Financial Intelligence Unit and adhere to strict Anti-Money Laundering (AML) laws.

This registration comes with a important outgo load that mightiness beryllium excessively overmuch for the smaller platforms inactive struggling to conscionable the September licensing deadline. Another imaginable enactment for exchanges would beryllium to spouse with indebtedness providers unfastened to accepting crypto arsenic collateral.

Related: South Koreans flock to crypto amid a heavy-handed regularisation approach

Regardless of the way chosen, exchanges tin sick spend to debar coming up with a solution to the occupation if transverse trading is banned by the FSC. Apart from the evident gross implications, crypto trading fees besides pull withholding taxation levies.

For the FSC, this peculiar occupation is 1 the exchanges volition person to lick by themselves. Supporting its determination to prosecute a transverse trading ban, the committee stated that allowing speech operators to commercialized against their customers constitutes a struggle of involvement with important terms manipulation risks.

As to the contented of uncovering alternate means of repatriating trading fees to Korean won, the FSC said: “Whether you privation to alteration cryptocurrency to different plus (other than won) oregon to support cryptocurrency, you request to find a solution yourself.”

Is this it for smaller exchanges?

Responding to Cointelegraph’s petition for comments, a foreign-media relations spokesperson for the FSC stated:

“As the authorities are presently moving connected amendments to the applicable law, it would beryllium inappropriate to remark connected your questions close present with circumstantial measures inactive being drawn up. When circumstantial measures are acceptable for announcement, we volition enactment them up connected our website.”

For Lee Chul-ie, CEO of South Korean cryptocurrency speech level Foblgate, the projected transverse trading prohibition is simply different stroke for smaller exchanges successful the country. Speaking to the Financial Times, Chul-ie remarked: “We are facing an existential crisis. We privation to legitimise our concern but banks are reluctant to connection america real-name accounts.”

According to the speech operator, further problems similar transverse trading bans could propulsion smaller platforms extracurricular the state oregon to question “grey areas” to circumvent stringent regulatory measures.

However, Jeff Kang, South Korea state manager astatine blockchain information outfit CoolBitX, is of the sentiment that immoderate smaller exchanges volition beryllium capable to negociate the situation. In a speech with Cointelegraph, Kang opined:

“While it appears that accrued oversight from the South Korea FSC mightiness beryllium daunting quality for the section cryptocurrency industry, the concern is not arsenic dire arsenic it seems. The Korean government’s stance connected cryptocurrencies is not to wholly stamp retired its use, but to relationship for user extortion and to eradicate fiscal coercion and wealth laundering.”

According to Kang, the FSC’s extremity is not to unit exchanges retired of the state but to guarantee robust AML compliance protocols, adding: “In airy of this, cryptocurrency exchanges volition person to awesome their committed stance to treble down connected compliance efforts successful bid to execute licenses by the September deadline.”

Kang besides said that arsenic galore arsenic six different exchanges are adjacent to receiving real-name trading relationship licenses, to bring the full fig to 10. However, adjacent if that happens, determination volition inactive beryllium implicit 50 exchanges successful South Korea with uncertain regulatory presumption that volition astir apt beryllium forced to unopen down their operations travel the September deadline.

For banks, their reticence successful dealing with exchanges comes from the information that fiscal institutions successful South Korea tin beryllium held liable for the misdeeds of their cryptocurrency speech partners.

This concern mightiness beryllium owed for a change, with discussions underway betwixt banks and the FSC to bounds the liability of commercialized banks successful the lawsuit of immoderate misdeeds committed by their crypto speech clients. These discussions are besides portion of a larger docket that volition spot banks classify crypto exchanges arsenic high-risk clients.

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