The new rules announced by the South Korean Financial Services Commission, or FSC, are expected to affect around 60 unauthorized cryptocurrency exchanges in the country and a new policy for banks will require them to classify any exchange customer from cryptocurrencies as “high risk”.
According For the Korea Times, the new guidelines were announced on Sunday and are intended to ensure that crypto exchanges strengthen their monitoring of transactions and meet strict user identification requirements. So far, only the four largest exchanges in South Korea have established real-name accounts that have been cleared by banks. FSC is justifying its measures by noting that there is a high demand from customers for greater protection for their assets held on smaller cryptocurrency exchanges.
The exchanges’ ability to operate under the radar will end in September, with FSC’s deadline for exchanges to submit applications for operating licenses before September 24. Following the presentation, financial intelligence officials will examine the business activities of the applicant crypto exchanges over a three-month review period. A particular focus will reportedly be preventing the use of borrowed or fake accounts to transact on exchange platforms.
For their part, banks will have to reject their services to any exchange client that does not comply with identity verification measures and report suspicious activities, for example, large transfers made to cryptocurrency exchange operators from unidentified accounts, to the Korea Financial Intelligence Unit.
Related: South Korean Regulators Tell Banks To Open Books On Cryptocurrency Exchanges
The Korean Federation of Banks and several commercial lenders have called on the FSC to reduce its liabilities for financial crimes in crypto exchanges, which could increase as the foreign exchange sector comes under increased regulatory oversight. Some institutions are concerned that investors may cite their research and acceptance of particular crypto exchanges as the basis for the trustworthiness of the platforms. An industry official told reporters:
“Banks are essentially obliged to take responsibility for issuing real-name accounts. Therefore, it is reasonable that there is some immunity to undertake the dangerous and costly task. “
It is not only the banks that have expressed their opinion on the changes that are coming in the regulation of the sector. In recent weeks, South Korea’s small- and medium-sized exchanges voiced their concerns in a meeting with financial regulators, emphasizing costly banking service fees that make partnerships prohibitively expensive for smaller companies.