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In a move aimed at improving consumer protections, South Korean crypto exchanges will be required to set aside a minimum of 3 billion won (approximately $2.3 million) in bank accounts as a safeguard.
The new requirements apply to exchanges that have been issued accounts from real-name local banks and come into force starting from September, as per the “Virtual Asset Real-Name Account Operation Guidelines” published by the Korea Federation of Banks (KFB) in July this year.
Real-name accounts in this context refer to KYC'd clients that have the same name at the bank as the exchange.
According to the guidelines, the 3 billion won minimum of the required cash reserves corresponds to 30% of crypto exchanges’ daily average deposits or 3 billion won and higher. These reserves will be capped at 20 billion won.
While the new measures mean further expenses, major South Korean crypto exchanges with high trading volumes, such as Upbit and Bithumb, are not expected to face any significant issues implementing the new measures.
Representatives from Upbit, the nation’s largest crypto exchange, confirmed to local media that it “will faithfully implement” the new guidelines. Bithumb also said that it is preparing for the new regime “without a hitch."
However, for smaller trading platforms, specifically for those operating on coin-only markets, or those that don't have crypto-to-fiat pairs, the new requirement may bring troubles.
These exchanges don’t have bank accounts and thus don’t need to accumulate reserves. Some of them, however, decided to negotiate with banks to open such accounts to survive in the market as there’s also the requirement to comply with the Specific Financial Information Act, which was introduced in 2021.
This particular act regulates the reporting and use of specified financial transaction information to prevent money laundering and terrorist financing, which resulted in decreased trading volumes as traders began moving to bigger exchanges with comprehensive compliance policies.
One such exchange is Hanbitco, which reportedly recently obtained a bank account but, as an unnamed representative of the virtual asset industry told local media, “may actually be the 'last train'" before the regulations come into place next month.
The KFB included several other standards in its operating guidelines, such as enhanced customer authentication (KYC), which will be implemented in January 2024.
In a separate development, South Korea's Financial Services Commission (FSC) last month announced the implementation of new rules, set to take effect in January 2024.
The new regulations will mandate local firms that issue or own cryptocurrencies to disclose a range of information, including the amount and characteristics of their crypto tokens, business models, and internal accounting policies concerning the sale of cryptocurrencies and associated profits.