South Korean Regulator new requirement might close the majority of crypto exchanges
The majority of Korean operators have to
submit requests for an official license with the Financial Services Commission
(FSC) till September 24 to meet South Korean crypto exchanges’ new compliance
According to some market insiders, the expected closing of 40 of the country’s probable 60 crypto operators, will be forced to shut down. Industry actors and representatives for smaller exchanges have contested the new requirements without any noticeable success for much of the past year.
Lee Chul-Yi, head of local crypto exchange Foblgate, has told the Financial Times that “A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of ‘alt-coins’ listed only on small exchanges….They will find themselves suddenly poor. I wonder if regulators can handle the side-effects.”
Since there is a high demand from Korean customers for more protection of their assets held at smaller crypto platforms, the FSC has raised an obligation. The root of their objection has been the obligation that all exchanges show evidence that they are operating using real-name accounts at South Korean banks.
Except for the country’s top four trading platforms like Upbit, Bithumb, Korbit, and Coinone, most of SouthKorea’s banks have refused to take any risk assessment process for applicant exchanges. These four exchanges are already responsible for over 90% of South Korea’s total traded volume. In recent months experts have made the case that the FSC’s new framework is composed to further build the country’s crypto space as a monopolized market.
With altcoins estimated to account for 90% of traded volume in South Korea’s crypto markets, the FSC has reportedly advised those exchange operators who expect to shut down to notify their clients no later than Sept. 17. President of the Korea Finance Consumer Federation, Cho Yeon-haeng has claimed that customer protection is unlikely to be the priority for those exchanges facing imminent closure and that “huge investor losses” are therefore expected due to the freezing of assets and suspension of trading on smaller platforms.
It seems that the regulatory heat will also affect international exchange operators. Whereas Binance already pre-emptively halted Korean won trading pairs to confirm it does not foul Korean authorities this summer.
The prime motive behind taking FSC’s new measures is to control Koreans’ enthusiasm for crypto trading amid concerns that retail investors, especially those from younger generations. As they struggle with suppressed wages, frozen job market, and ever-rising real-estate prices they are borrowing excessively for trading.
CBW - External Analyst