The deadline for South Korean crypto exchanges to meet new compliance requirements is fast approaching. All operators are expected to submit an official license application to the Financial Services Commission (FSC) by September 24.
Deadline for new requirements is approaching
Failure to comply with these new requirements from South Korean regulators is expected to wipe out dozens of crypto exchanges.
Market participants and representatives of smaller exchanges have been challenging the new requirements over the past year, but without success. Now insiders expect to allegedly that nearly 40 of the country’s estimated 60 crypto operators are being forced to shut down.
Their main objection was the requirement that all exchanges must prove that they are working with real accounts at South Korean banks. The FSC has justified this by stating that there is a high demand from customers for more protection for their assets held on smaller crypto platforms. Yet, for the most part, South Korea’s banks have refused to participate in a risk assessment process. However, the country’s four main trading platforms are cooperating.
These four exchanges, Upbit, Bithumb, Korbit and Coinone, already account for more than 90% of South Korea’s total trading volume. Experts have claimed in recent months that the FSC’s new framework is poised to further strengthen the country’s crypto space as a monopolized market.
Major consequences for investors
Kim Hyoung-joong is a professor and head of the Cryptocurrency Research Center at Korea University. Hyoung-joong’s estimates predict that the shutdown of massive exchanges will eliminate 42 “kimchi coins”. This is a nickname for smaller altcoins that trade against the Korean won on smaller platforms. Lee Chul-yi, head of local crypto exchange Foblgate, told the Financial Times:
“A situation that resembles a bank run around the deadline is expected. Investors cannot redeem their holdings of “alt-coins” listed only on small exchanges. […] They will suddenly be poor. I wonder if regulators can handle the side effects.”
With altcoins estimated to account for 90% of the volume traded in South Korea’s crypto markets, the FSC has reportedly advised exchange operators expecting to close to notify their customers by September 17. Cho Yeon-haeng, president of Korean Consumer Finance Federation, has argued that customer protection is unlikely to be the priority for those exchanges facing imminent closure. Therefore, “huge losses for investors” are expected. This is due to the asset freeze and suspension of trading on smaller platforms.
The regularing will also affect international exchange operators. Binance has already preemptively halted Korean won trading pairs this summer to ensure it does not violate Korean law.
The new measures are designed to curb Koreans’ enthusiasm for crypto trading. This comes amid concerns that retail investors, especially those of younger generations, are borrowing excessively to trade. Meanwhile, they struggle with depressed wages, a frozen job market and growing real estate prices.