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With several cryptocurrency exchanges in South Korea on the verge of collapse as a new regulatory framework takes effect, some are threatening to sue the government for alleged shirking of crucial obligations.
With the introduction of new laws by South Korea’s Financial Services Commission (FSC), several smaller bitcoin exchanges in the nation fear closure.
These laws require each exchange to demonstrate that it has a real-name account at a Korean bank by September 24, 2021 — the catch is that local banks are not doing any risk assessments for applicant exchanges, with the exception of the country’s top four trading platforms.
Smaller exchanges are now reportedly considering suing the government over its alleged failure to take responsibility for much of its regulatory remit, according to a report from Business Korea. As part of the FSC’s new rules, domestic banks are required to refuse their services to any crypto exchange client they deem to have failed to comply with ID verification measures or to report suspicious activities.
According to one industry source, the government and banking authorities have basically delegated most of the duty for crypto exchange screening to banks, which are now “forced to take responsibility for issuing real-name accounts.”
Given that the Korea Federation of Banks and other commercial lenders have already petitioned the FSC to alter the new laws, fearing their own potential liability for financial crimes on cryptocurrency exchanges, the government may soon face pressure from all sides.
According to Business Korea, an unspecified number of exchanges are considering launching a constitutional appeal against the government and financial authorities for their apparent failure to regulate the business and ensure best standards.
K Bank, NH Bank, and Shinhan Bank are allegedly evaluating the Korean crypto industry’s top names, including UPbit, Bithumb, Coinone, and Korbit. A comparable involvement, however, is being withheld from lesser-known sites, for which banks are hesitant to accept responsibility. One unnamed representative of a cryptocurrency exchange told reporters:
“These days, banks are refusing to initiate their cryptocurrency exchange verification processes without clear reasons and most exchanges are failing to get a chance to prove themselves. […] The Financial Services Commission needs to step in right away.”
Earlier this month, twenty Korean crypto exchanges met behind closed doors with the FSC’s Financial Intelligence Unit, where they allegedly raised worries about hurdles to achieving the real-name account requirements, among other operational issues. Only the “Big Four” exchanges looked to have a future under the new criteria at the time, as they do now.
Aside from the lack of involvement, the expenses associated with establishing such financial relationships are prohibitively expensive for most smaller companies. It is anticipated that the modifications brought about by the new laws, which are part of a wider set of new crypto-specific legislation, would cost $1.5 billion. are set to affect roughly 60 exchanges in the country.