South Korea has taken a decisive step, instructing its local cryptocurrency exchanges to maintain a reserve of at least 3 billion won, equivalent to roughly $2.3 million.
This directive, anchored in the “Virtual Asset Real-Name Account Operation Guidelines” by the Korea Federation of Banks, is set to be enforced in September. The primary objective is safeguarding users, especially in the event of cyberattacks or system malfunctions.
South Korean authorities have required South Korean cryptocurrency exchanges that obtain accounts from banks to establish a minimum reserve of $2.28 million and a maximum of $1,520 since September to compensate users for losses in the event of accidents such as hacking.…
— Wu Blockchain (@WuBlockchain) August 28, 2023
The guidelines specify that exchanges should accumulate either 3 billion won or 30% of their daily average deposits, depending on which amount is more significant. However, there’s a clear limit: if 30% of the daily average deposit exceeds 20 billion won, exchanges can only accumulate up to that amount.
Major exchanges adapt as smaller platforms navigate challenges
Upbit and Bithumb are adjusting their operations in the Korean crypto market to comply with these requirements. An official from Upbit confirmed their adherence to the guidelines of the Korea Federation of Banks. Bithumb is also making changes to meet the new standards.
However, smaller trading platforms, especially those focusing on coin-to-coin transactions, face a more complex landscape. Many of these platforms have capital limitations, making accumulating the required reserves a significant challenge. Their ongoing discussions with banks for real-name account issuance might now be uncertain.
Additionally, the Korean Federation of Banks has expanded its regulatory scope. The guidelines also touch on standards like enhanced customer authentication (KYC) and additional measures for transfer authentication. While most of these guidelines are set for January 2024 implementation, the reserve accumulation directive is prioritized for a September launch.
The Financial Services Commission’s Financial Intelligence Unit (FIU) also plays a role in this regulatory shift. They are drafting the ‘standards for issuing bank real-name accounts’, ensuring they align with the banking sector’s guidelines. With these standards, existing exchanges in the “won” currency market are expected to integrate them promptly.
Coin Market Exchanges: A Rocky Path Ahead
As the deadline nears, established exchanges in the won currency market are gearing up. However, coin market exchanges, primarily dealing with coin-to-coin transactions, are navigating a challenging path. The introduction of the revised Specific Financial Information Act in 2021 and the lack of support for won-to-coin transactions have impacted their transaction volumes.
For these platforms, accumulating 3 billion won is a daunting task. This requirement is causing disruptions in their reserve processes. Their ongoing discussions with banks over real-name account issuance are also at risk, especially if they can’t meet the banking sector’s minimum standards.
An industry insider provided insight into the situation, suggesting that Hanbitco, which recently secured a real-name account, might be among the last few to do so under the current conditions.
The essence of these changes rests on ensuring that crypto exchanges in South Korea function with increased transparency, responsibility, and accountability. While significant players might adapt relatively quickly, smaller entities face a period of adaptation, learning, and potential transformation.
Moreover, South Korea’s measured approach toward cryptocurrency regulation is a testament to its commitment to investor protection and financial stability. As these regulations roll out, they’ll likely set a precedent domestically and potentially globally.
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