Only ten cryptocurrency exchange companies have registered with the KFIU, and only four have secured contracts with banks, as required by the second requirement.
On Thursday, September 23, 2021, six Korean crypto exchanges, Five, Gdac, OK-BIT, Prabang, and Flat Thai X, made progress toward meeting the Korean Financial Intelligence Unit’s regulatory compliance requirements, with a further 18 expected to file documents by Friday, September 24. If these are completed, the total number of registered exchanges will be 28. These 28 include what are known as “The Big Four,” namely Upbit, Bithumb, Coinone, and Korbit, which account for more than 90% of crypto asset trading volumes in South Korea. The Big Four have secured contracts with banks for real-name account verification, as well as certification from the Korean Internet And Security Agency, indicating that their registrations were eligible for submission to the KFIU.
Exchanges with limited resources are most likely to be impacted.
The Korea Internet and Security Agency (KISA) required certain security infrastructure from exchanges in order to reduce money laundering risks. Furthermore, before the Financial Services Commission can grant approval, partnerships with local banks must be established. Banks bear the risk of funds being used for financial crimes, so they have been hesitant to collaborate with exchanges that lack the resources to implement comprehensive anti-money laundering systems in accordance with KISA requirements. According to industry experts, at least fifty exchanges will close or reduce service offerings as a result of not meeting all of the requirements.
Gopax, Huobi Korea, and Gdac were unable to secure bank partnerships and would have had to cease operations by September 24, 2021, at midnight. Probit and Problegatr have already shut down. The Financial Services Commission urged investors to withdraw assets from exchanges before the compliance deadline, warning that they may be irretrievable if an exchange closes.
Concerns about a potential Korean ‘crypto monopoly’
According to a Democratic Party member, these events pave the way for a potential lopsided monopoly of crypto services in Korea, implying that any exchange could list or delist coins or raise transaction fees at will. According to Justin d’Anethan, head of sales at Eqonex, the abundance of overseas exchanges and the growth of decentralized exchanges mean that options for traders are increasing rather than decreasing, and that regulations will legitimize the crypto space and clarify industry practices.