In brief
- UPbit, South Korea’s largest crypto exchange, could soon start serving new customers again.
- South Korea’s Special Financial Information Law means that banks no longer responsible for issues on crypto exchanges.
- The passing of the law would mean that banks could allow crypto exchanges to issue virtual banking accounts to users.
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UPbit, South Korea’s largest crypto exchange by volume, may soon be able to serve new customers for the first time in two years after the approval of a key piece of cryptocurrency legislation.
The recently-passed Special Financial Information Law legitimizes the local cryptocurrency exchange market by tightening anti-money laundering (AML) policies and requiring exchanges to be regulated by the Financial Services Commission (FSC).
Why UPbit hasn’t been able to serve new crypto users
Since late 2017, UPbit has been unable to issue new virtual banking accounts to users.
An individual can theoretically open a new account on UPbit, but cannot receive a virtual banking account from the exchange. That makes it impossible to buy and sell cryptocurrencies with South Korean won on the exchange.
In South Korea, crypto exchanges have the ability to issue virtual banking accounts in partnership with local commercial banks. That allows users to hold South Korean won on the exchange through the virtual account, which is directly managed by a bank.
When a user deposits South Korean won to a virtual banking account on a crypto exchange, they can then withdraw and deposit funds to and from the virtual banking account, without having to deal with their actual bank account.
The system was implemented for efficiency; when a user tries to send, for instance, $1,000 worth of South Korean won to an exchange, it can take three to five days of processing time. With virtual banking accounts, that process is nearly instantaneous.
The problem lies in the process of obtaining virtual banking accounts. Crypto exchanges are required to independently establish contracts with commercial banks to provide banking accounts to users.
Since December 2017, UPbit has not been allowed to issue virtual bank accounts to new users, after the government decided that banks would be responsible for any money laundering or terrorist-financing activity on crypto exchanges.
UPbit is the only leading crypto exchange in South Korea that has been unable to issue new bank accounts, because the bank it partnered with is the government-owned Industrial Bank of Korea.
Could UPbit begin serving new users again?
The new legislation alleviates pressure from local commercial banks in dealing with AML policies, making crypto exchanges fully responsible for any potential issue related to user activity.
Given that UPbit has already obtained an information security management (ISMS) license from the Korea Internet & Security Agency, local analysts have raised the possibility of UPbit serving new users once again, in the near future.