In South Korea, around 60 crypto exchanges could go out of business as soon as Friday, with the deadline to meet official government requirements soon expiring.
Authorities gave just one exchange, Upbit, the green light, according to the Korea JoonAng Daily.
Back in March, the Korea Financial Intelligence Unit (the country’s version of the SEC) gave local exchanges six months to fall in line with new anti-money-laundering (AML) legislation.
They were also required to partner with recognized banks that would issue named accounts for traders to qualify for Information Security Management System (ISMS) certification — an information security stamp of approval.
But as of this week, only six have filed applications. Four exchanges (Bithumb, Korbit, Coinone, and the country’s largest Upbit) have signed partnerships with banks.
A number of other platforms are reportedly in talks with banks. However, it’s a difficult box to tick — particularly for smaller exchanges.
Banks are historically reluctant to partner with smaller exchanges. That’s due to the increased onus of ensuring funds and traders they deal with are legit.
Exchanges that fail to buddy up with a bank can continue to operate if they’ve already gained ISMS approval. However, this is on the condition they become crypto-only and do away with fiat-based trading.
So far, 29 exchanges have ISMS certification.
This could mean the other 60-odd Korean exchanges who don’t will close down completely, or at least severely reduce their services come Friday.
Blame it on South Korea’s banks
Indeed, the task of making sure crypto trades and traders are above board has been shifted firmly onto the shoulders of local banks since South Korea’s Financial Services Commission (FSC) tightened its AML laws in March.
If a bank agrees to provide named accounts to traders, it becomes responsible for identifying potentially illicit crypto activity and could face a fine if it fails to do so.
Unfortunately, this has led to banks shunning smaller Korean exchanges in favor of bigger and seemingly more trustworthy names.
Currently, banks don’t have universally agreed standards to determine whether exchanges have sufficient anti-money laundering processes in place.
This confusion makes it doubly difficult for exchanges looking for a partner to meet the required standards.
Speaking in April, a crypto exchange spokesperson told Korea JoonAng Daily (our emphasis):
“We have the necessary technologies to prevent money laundering, which is the main point of the new law, but financial authorities are not providing thorough evaluation guidelines.”
“We will try to the best of our ability to partner with banks and are willing to even start negotiations with provincial banks if necessary.”
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