South Korean cryptocurrency exchanges will be forced to save a minimum of 3 billion won (about $2.3 million) in bank accounts as a safety measure as part of an effort to improve consumer protections.
According to the “Virtual Asset Real-Name Account Operation Guidelines” published by the Korea Federation of Banks (KFB) in July of this year, the new restrictions apply to exchanges that have been issued accounts from real-name local banks and go into effect in September.
Real-name accounts in this context refer to customers who have undergone KYC and whose names match those at their bank and exchange.
The minimum needed cash reserve amount of 3 billion won equals 30% of the daily average deposits made by cryptocurrency exchanges, or 3 billion won and higher, as per the regulations. The maximum amount of these reserves is 20 billion won.
The implementation of the new restrictions is not anticipated to provide any substantial challenges for big South Korean crypto exchanges with high trading volumes, such as Upbit and Bithumb, despite the fact that they include additional costs.
The biggest cryptocurrency exchange in the country, Upbit, affirmed to local media that it “will faithfully implement” the new rules. Bithumb added that the transition to the new administration is going “without a hitch.”
The new rule may cause issues for smaller trading platforms, particularly those that operate on coin-only markets or don’t offer crypto-to-fiat swaps.
Since these exchanges lack bank accounts, they are not required to build up reserves. To survive in the market and to comply with the Specific Financial Information Act, which was enacted in 2021, some of them chose to negotiate with banks to open such accounts.
In order to combat money laundering and the financing of terrorism, this specific act limits the reporting and use of specific financial transaction information. As a result, trading volumes declined as dealers started switching to larger exchanges with thorough compliance rules.
One such exchange is Hanbitco, which has just opened a bank account but “may actually be the ‘last train before the regulations are put into effect next month, according to an unnamed representative of the virtual asset market who spoke to local media.
Other criteria, such as enhanced customer authentication (KYC), which will be put into effect in January 2024, were also included in the KFB’s operating guidelines.
Separately, the Financial Services Commission (FSC) of South Korea last month announced the implementation of new regulations, scheduled to go into effect in January 2024.
The new rules would require local businesses that issue or possess cryptocurrencies to publish a variety of information, including the quantity and specifications of their crypto tokens, their business strategies, and internal accounting procedures for the sale of cryptocurrencies and related earnings.