• South Korea: Bithumb’s unexpected breakup puts doubt on recent restrictions

  • Crypto-regulations recently enacted in South Korea have caused a plethora of issues for the industry. Bithumb, the top crypto exchange in South Korea, has chosen to cut links with exchange platforms abroad after taking multiple substantial steps to comply with regulatory standards.

    The exchange has opted to terminate its Trademark License Agreement with Bithumb Global and Bithumb Singapore, according to an official notice. After their contracts expire on July 30, these sites will no longer be allowed to utilize Bithumb’s name. This is said to have been done to forestall any future money laundering investigations.

    If they were using the Korean Won, South Korean financial officials had requested foreign-based exchanges to register with the country’s anti-money laundering (AML) organization earlier in March. Banks were required to offer real-name accounts to traders under the updated law, which has a six-month notice period so that human usage of these accounts could be verified. As a result, banks were tasked with assessing the risks involved with crypto exchanges.

    Small-time exchanges lost banking partners as a result of this, and companies were now barred from withdrawing funds for trading if they didn’t follow the amended standards. Many institutions who did not consider the potential reward to be worth the danger of a money-laundering investigation quickly exited the crypto-space.

    Following suit, two of the country’s ‘Big 4’ crypto-exchanges, Bithumb and Upbit, as well as several smaller exchanges, delisted countless defunct or minor cryptocurrencies while adding many more to their watchlists. This was a contentious move, especially because South Koreans are known to trade altcoins far more than Bitcoin, with the latter accounting for only 7% of transactions in May, according to CoinMarketCap.

    Furthermore, Bithumb announced earlier this month that as of August 13, it will no longer accept registration requests from international merchants. It will also prevent dealers from accessing the site if they are located in four more nations that have been added to the anti-money laundering watchlist.

    Bithumb said around the same time that its staff will no longer be able to trade on the site. This was allegedly done to “guarantee transparent functioning” by preventing employees from taking advantage of the exchange and engaging in unfair trading practices.

    What are the goals of these steps? These steps are being spurred by the fear that the country’s top four exchanges would be de-banked if risk assessments are found to be excessive. The decision of the banks as to whether or not to keep their links with these exchanges will determine whether or not they are allowed to register with the Korean Financial Intelligence Unit.

    Even if partnerships with domestic commercial banks are approved for the exchange, they risk being denied a license if regulators determine that they are not complying with the updated AML and KYC regulations. This has put the country’s exchanges in jeopardy, with tiny exchanges likely to be wiped out and larger exchanges forced to bend over themselves to court the financial institutions.

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