South Korea is considering a ban on cross-exchange trade for cryptocurrency exchanges.

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Crypto exchanges in South Korea are wailing over a new plan that would restrict them from transferring trading fees to fiat cash.

South Korea’s Financial Services Commission has attempted to prohibit cross-exchange trading on the country’s cryptocurrency exchanges.

This decision is part of a slew of changes to the country’s Act on the Reporting and Use of Certain Financial Transaction Information.

Cross trading is the practise of offsetting purchase and sell orders for the same asset (at the same price) without publishing the transaction on the order book, which is banned in many countries.

However, according to a report by local media outlet Newsis, exchange operators in South Korea have bemoaned the planned prohibition stating that the move would cause significant disruptions to their already strained operations.

The anticipated measure, according to several South Korean crypto exchange operators, would stifle the flow of cash into their platforms.

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South Korean exchanges apparently cross trade in order to convert cryptocurrency fees to Korean won (KRW). An industry representative informed Newsis about the practise:

“In order to convert the cryptocurrency received as a fee into KRW, you have no choice but to sell the cryptocurrency at your place of business.”

A restriction on cross trading would theoretically prevent platforms from converting these fees from bitcoin to fiat cash. In fact, the proposed restriction might imply mandatory zero-commission trading, so eliminating the money generated by trading fees.

According to the unnamed source, South Korean cryptocurrency exchanges would be obliged to establish a new firm in order to convert trading fees to fiat cash. However, such a move would be prohibitively expensive due to the country’s anti-money laundering rules, which would make such a business too expensive to run.

Apart from reducing exchange income, the action may also make tax payments more difficult. Indeed, withholding tax is applied on exchange trading fees, which implies that platforms must find a way to convert payments received in cryptocurrency to won because taxes in South Korea cannot be paid in cryptocurrency.

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As a stopgap solution, South Korean crypto exchanges may be obliged to use cryptocurrency fee payments as collateral to acquire loans for withholding tax payments.

The FSC, meanwhile, is reportedly undaunted by the criticisms espoused by exchange stating that cross trading constitutes a “conflict of interest.” According to the FSC, exchange operators have access to inside information and allowing them to trade against customers could lead to price manipulation.

On the subject of how exchanges will handle fees collected in crypto, the Commission stated, “Whether you want to change cryptocurrency to another asset (other than won) or to keep cryptocurrency, you need to find a solution yourself.”

The FSC recently met with 20 crypto exchanges in the nation, as previously reported by Cointelegraph. Several small and medium-sized platforms informed the Commission about the challenges they were experiencing in carrying out their activities during the conference.

Aside from the cross-trading prohibition, the upcoming revisions would require exchanges to keep at least 70% of customer deposits in cold wallets. The provision is said to be part of countermeasures against crypto exchange hacking, with the FSC preparing to probe prior incidents for possible insider participation.

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