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South Korea cracks down on crypto in a regulatory overhaul

South Korea cracks down on crypto in a regulatory overhaul

Last updated 24th Jun 2022

The South Korean cryptocurrency market is set to undergo heavy losses. The country’s financial watchdog, The Financial Services Commission, has introduced regulations to tighten oversight of the crypto sector. What are the new guidelines? Keep reading.

So, what exactly are the regulations by The Financial Services Commission?

The regulatory authority has set a September 24th deadline for local and foreign exchanges to register as legal crypto trading platforms. While about 20 exchanges have met the conditions for legal registration, most local ones struggle to do the same.

Because of this, industry analysts estimate that almost 40 of South Korea’s estimated 60 crypto operators might shut down once the deadline expires.

This mass shutdown of the smaller exchanges could contribute to the elimination of kimchi coins. These coins are alternative digital currencies listed on local exchanges and traded mostly in Korean won.

The country’s crypto trading is dominated by four big players, Upbit, Korbit, Coinone, and Bithumb. These companies account for over 90% of the total trading volume.

For the exchanges that won’t meet the regulatory conditions, the FSC has advised that they notify their customers by September 17th about the possible closure. They had also sent a notice to 27 foreign crypto exchanges that handle operations for Korean traders.

To get a license as a legal trading platform, the crypto exchanges must,

  • Partner with South Korean local banks to get a bank contract and open accounts with real customer names.
  • Submit a business registration report to the Financial Intelligence Unit (FIU).
  • Have Information Security Management System (ISMS) certification.

Local lenders have been slow in meeting these conditions because they are careful about being exposed to financial crimes such as money laundering.

What are the effects of this regulation?

Once this law comes into effect, here’s what’s bound to happen in South Korea,

  • Cryptocurrency traders might experience losses of more than Won3tn ($2.6bn).
  • Two-thirds of the country’s crypto exchanges might be wiped out in the crackdown.
  • Elimination of the kimchi coins.
  • The law will affect global exchanges that offer won trading.

In August, Binance, one of the largest operators in the country, suspended its operations in South Korea to comply with the regulations.

Walter Akolo

Walter Akolo

Walter is a writer from Nairobi, Kenya. He covers the latest news on the cryptocurrency market and blockchain industry. Walter has a decade of experience as a writer.