Failure to comply with South Korean regulators’ new requirements will likely result in the extinction of tens of cryptocurrency exchange operators.
South Korean cryptocurrency exchanges face an impending deadline to comply with new compliance requirements, with all operators expected to submit applications for official licences to the Financial Services Commission (FSC) no later than Sept. 24.
For the better part of the last year, industry actors and representatives of smaller exchanges have contested the new requirements, but without success.
Now, insiders anticipate that close to 40 of the country’s estimated 60 cryptocurrency operators will be forced to close their doors.
South Korea’s central argument has been that all exchanges must demonstrate that they are operating with real-name accounts at South Korean banks.
The FSC justified the move by claiming that there is a high level of customer demand for enhanced protection for assets held on smaller crypto platforms.
Nonetheless, South Korea’s banks have largely refused to conduct risk assessments on applicant exchanges, with the exception of the country’s top four trading platforms.
These four exchanges – Upbit, Bithumb, Korbit, and Coinone – already account for more than 90% of South Korea’s total traded volume, and experts have argued in recent months that the FSC’s new framework is poised to further entrench the country’s monopolised crypto space.
Additionally, Kim Hyoung-joong – a professor and head of Korea University’s Cryptocurrency Research Center estimates shows the following.
The mass exchange closures will result in the abolition of 42 “kimchi coins” – a moniker for smaller altcoins listed on smaller platforms and traded against the Korean won.
According to Lee Chul-yi, CEO of local cryptocurrency exchange Foblgate,
“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.”
With altcoins accounting for an estimated 90 percent of traded volume in South Korea’s cryptocurrency marketplaces.
The Financial Supervisory Commission (FSC) has allegedly instructed exchange operators that anticipate to close to notify their consumers no later than September 17.
Korea Finance Consumer Federation President Cho Yeon-haeng has stated that customer protection is unlikely to be a top priority for exchanges that are on the verge of being closed.
As s a result, “huge investor losses” are expected as a result of the freezing of assets and suspension of trading on smaller platforms.International exchange operators will be impacted by the regulatory heat as well.
Binance has already taken the proactive step of suspending Korean won trade pairings this summer in order to avoid falling foul of Korean regulators.
Because of poor wages, a sluggish employment market, and rising real estate prices, the government has introduced additional rules to curb retail investors’ excitement for bitcoin trading.