South Korea’s Strict Crypto Regulations a Stamp of Legitimacy for Industry
Cryptocurrency exchanges will now be required to conduct extra due diligence on their customers in new regulations recently released by South Korea’s Financial Services Commission.
The guidelines are meant to prevent money laundering and are specifically targeted at cryptocurrency exchanges.
Although the new guidelines serve to further tighten the cryptocurrency space in the country, they are also being seen as another badge of legitimacy to the industry.
The FSC has also asked the Korea Financial Intelligence Unit (KFIU) to step up monitoring of user activity and oversight over cryptocurrency transactions.
At least three large banks which have been handling cryptocurrency transactions will also be investigated by the relevant authorities, the FSC has directed. They include Nonghyup, Hana Bank and Kookmin, all of which have been providing banking services including virtual accounts to cryptocurrency exchanges.
Exchanges will also be required to conduct deeper background checks to weed out any foreigners buying and trading cryptocurrencies in South Korea. This is in line with an earlier regulation which bans foreigners from trading in South Korea.
The country has long been one of the most active markets with bitcoin trading at a premium. Traders can therefore make profit by simply buying bitcoin in other exchanges say in the US and selling them in South Korea. The ban as well as strict financial regulations which restrict movement of money outside South Korea however make this possibility extremely difficult.
The market is therefore largely restricted to South Koreans. In December, bitcoin was trading at 40% premium.
One of the new policies is meant to spot movements in exchanges and banks associated with cryptocurrency exchanges. Banks will be required to report any suspicious movements seeking to take advantage of the so-called “kimchi premium” for investigations.
Enhanced Due Diligence
The Enhanced Due Diligence and Customer Due Diligence guidelines require exchanges to “perform sufficient background checks to ensure foreigners are not using local cryptocurrency exchanges to trade digital assets, criminals are not using personal accounts of individuals secretly to launder money and prevent suspicious transactions and payment processing.”
The new regulatory framework is also an effort to protect investors. Many exchanges in South Korea have been the target of cyber attacks. The most recent one involved Bithumb, one of the largest globally.
At the same time Yoon Suk-heun, the new head of the Financial Supervisory Service said the body will consider easing cryptocurrency regulations.
“Regarding cryptocurrencies, there are some positive aspects,” he said while speaking with reporters.
The FSC looks at policies and supervises the FSS which in turn supervises financial institutions.
The FSC has previously banned anonymous accounts. Such measures have seen cryptocurrency trading go down significantly in the past.