The regulation of cryptocurrency exchanges in South Korea has become more stringent following the enactment of the “Act on Reporting and Using Specified Financial Transaction Information” in March, which was approved by the Korean parliament.
Lack of transparency and privacy in trading on Korean crypto exchanges
This has set new anti-money laundering rules for all financial operators trading virtual assets, clearly including cryptocurrencies.
The new transparency and privacy rules would force nearly 60 exchanges to shut down within hours, when the six-month deadline for compliance expires.
Under the new Korean law, exchanges would have to have a banking financial partner to continue trading or be licensed by the country’s financial authority. According to the Financial Times, this could mean a loss of around $2.6 billion for cryptocurrency traders in the country.
The American television network CNBC reported that only four exchanges in the country, Upbit, Bithumb, Coinone, and Korbit, which are also the largest, would have reached the targets required by law in order to continue operating in the country, while all the others, especially the smaller ones, will be forced to close or significantly reduce the services offered to their customers.
Korea and the crypto market
This news comes at a time when Korea is seeing a considerable increase in investors’ appetite for cryptocurrencies.
In a May 2021 survey with 1885 workers, 40.4% said they had invested in some cryptocurrencies. And of those, about 49.8% of those workers were between the ages of 30 and 39.
This is due both to the great interest that Koreans have always had in all things technological and innovative, and to an economic situation that has worsened over the last year and a half, bringing the youth unemployment rate to 11%.
Another element that has created fertile ground for cryptocurrencies is the huge spread of mobile payments (like in China) and electronic payments in general, and this can only encourage the spread of digital currencies.
The country’s financial authorities have long been suspicious of the spread of cryptocurrencies and crypto trading, complaining of a lack of transparency and risks of money laundering and tax evasion. This law would have the task of regulating a sector that was growing perhaps a little too fast.
The risk of a crypto bubble in Korea
On 17 December last year, South Korea accounted for 21% of total Bitcoin transactions, making it the third-largest market after the United States and Japan. In August, the governor of the Korean central bank, Lee Ju-yeol, had to intervene publicly in a speech, warning about the risks of investing in cryptocurrencies, which according to him are financial instruments with no intrinsic value.
Eun Seong-Soo, chairman of the Financial Services Commission, the body that oversees the country’s financial markets, also added to the criticism, saying in a meeting that there was a real risk that investors in cryptocurrencies might not be protected by law in the event of fraudulent losses.
“The government does not cover the financial losses of individual investments in works of art,” Eun said. “In the same sense, I don’t support the idea that the government should protect cryptocurrency investors.”
This sensational decision, which is unprecedented elsewhere in the world, could deliver a major blow to the cryptocurrency market in Korea, which many experts believe is already at serious risk of a speculative bubble.
Although the four exchanges that continue to operate, still account for around 90% of the crypto volumes traded every day in South Korea, in terms of reputation and confidence in the crypto market, the blow will certainly make itself felt.