• South Korean cryptocurrency exchanges have until September 24 to submit a license request

  • Failure to meet South Korean regulators’ new requirements is expected to result in the demise of tens of cryptocurrency exchange operators.

    The deadline for South Korean cryptocurrency exchanges to meet new compliance requirements is fast approaching, with all operators expected to submit requests for an official license with the Financial Services Commission (FSC) by September 24.

    For much of the past year, industry actors and representatives from smaller exchanges have contested the new requirements.

    The sticking point has been the requirement that all exchanges provide proof that they are using real-name accounts at South Korean banks. The FSC has justified its decision by claiming that there is a high demand from customers for greater protection for assets held on smaller crypto platforms. However, with the exception of the country’s top four trading platforms, South Korean banks have generally refused to engage in any risk assessment process for applicant exchanges.

    These four exchanges — Upbit, Bithumb, Korbit, and Coinone — already account for more than 90% of total traded volume in South Korea, and experts have recently argued that the FSC’s new framework is poised to further cement the country’s crypto space as a monopolized market. Some predict that nearly 40 of the country’s estimated 60 crypto operators will be forced to close their doors.

    Furthermore, Kim Hyoung-joong, a professor at Korea University and the head of the Cryptocurrency Research Center, predicts that the mass exchange closures will eliminate 42 “kimchi coins” — a moniker for smaller altcoins listed on smaller platforms and traded against the Korean won. Lee Chul-yi, the CEO of local cryptocurrency exchange Foblgate, told us:

    “A bank run-like situation is expected near the deadline, as investors are unable to cash out their holdings of ‘alt-coins’ listed only on small exchanges. […] They will become impoverished overnight. I’m curious if regulators will be able to deal with the side effects.”

    With altcoins accounting for 90 percent of traded volume in South Korea’s crypto markets, the FSC has reportedly advised exchange operators who intend to close to notify their clients by September 17. According to Cho Yeon-haeng, president of the Korea Finance Consumer Federation, customer protection is unlikely to be a priority for those exchanges facing imminent closure, and “huge investor losses” are thus expected as a result of asset freezing and trading suspension on smaller platforms.

    The regulatory pressure will also have an impact on international exchange operators. Binance already halted Korean won trading pairs this summer to avoid infringing on Korean authorities.

    The new measures are intended to dampen Koreans’ enthusiasm for cryptocurrency trading, as there are concerns that retail investors, particularly those from younger generations, are borrowing excessively in order to trade while struggling with stagnant wages, a frozen job market, and rising real-estate prices.

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