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Sun, January 29, 2023 | 09:00
Markets
Fear of 'mass shutdown' of crypto exchanges looms large in Korea
Posted : 2021-04-20 16:16
Updated : 2021-05-12 22:00
Lee Min-hyung
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An official at Bithumb, a Seoul-based cryptocurrency exchange, looks at digital asset prices displayed on an electronic board in its Seoul office, Tuesday. Yonhap
An official at Bithumb, a Seoul-based cryptocurrency exchange, looks at digital asset prices displayed on an electronic board in its Seoul office, Tuesday. Yonhap

By Lee Min-hyung

With most cryptocurrency exchanges in Korea facing "mass shutdowns," retail investors are urged to pay closer attention to a regulation-induced upheaval in the virtual asset industry here.

Under the so-called Special Financial Information Act, no virtual asset exchange can operate here unless they secure real-name bank accounts for users following a grace period that ends in September.

There is no official data on the total number of cryptocurrency exchanges operating in Korea, but industry sources estimate the figure at around 100. But only four of them ― Bithumb, Upbit, Coinone and Korbit ― have signed partnerships with commercial banks here, allowing their users to trade cryptocurrencies using real-name bank accounts.

They also have to renew their partnerships with affiliated banks or sign new contracts with other lenders in order to keep operating after the end of September. The so-called big four cryptocurrency exchanges are widely expected to keep running their platforms, but the possibility of suspensions loom as banks become more and more conservative in assessing their partnerships with the exchanges.

Financial industry sources are advising retail investors to remain cautious in selecting cryptocurrency exchanges due to the escalating uncertainties.

"Most investors consider which cryptocurrency to invest in, but they should also take into careful consideration which exchanges will offer stable services after the act takes effect here," an a financial industry source said.

The source added that investors should not assume that banks will keep renewing their contracts with the widely used virtual asset exchanges, as lenders are stepping up vigilance against possible financial incidents after being involved in a nationwide fund fiasco last year.

"Banks may end up assuming full responsibility if the affiliated exchanges are exposed to security threats or fail to ensure user privacy," the official said. "No lender is willing to take on the risk simply to ride on the global cryptocurrency bandwagon."

The Financial Services Commission (FSC) has given banks the autonomy to select "reliable" exchange partners on their own. This puts banks under growing pressure to keep issuing real-name accounts for exchanges, as the lenders themselves will be held responsible for even a minor security mishap involving affiliated exchanges.

"Banks or financial institutions are extremely wary of losing credibility from customers, as regaining trust takes a considerable amount of time," the source said. "Despite the global cryptocurrency craze, they do not have to run the risk of betting on uncertainties."

Another bank industry source also remained skeptical over lenders' partnerships with cryptocurrency exchanges.

"Banks can attract new subscribers by offering real-name accounts for exchange operators, but there are few other benefits that banks can enjoy in terms of profits," the source said.

"We have much more to lose than gain from the partnership, but some banks seeking marketing effects or increases their user bases choose to form ties with virtual asset trading platforms," the official said.

For now, the government and financial authorities are expected to devise a tougher set of regulations concerning virtual asset transactions.

The FSC has recently teamed up with the Fair Trade Commission and the Ministry of Economy and Finance to launch a pan-governmental investigation of suspicious cryptocurrency transactions until the end of June.

The decision was made amid escalating concerns over possible money laundering using cryptocurrencies.

Authorities say the regulations are necessary, because the concept of cryptocurrency is still considered relatively new and cyber cash is less stable than currencies issued by central banks.

A general view is that regulators will keep introducing additional measures against virtual asset speculation, as most types of cyber money entail sharp price fluctuations, while most cryptocurrency owners are retail investors.



Emailmhlee@koreatimes.co.kr Article ListMore articles by this reporter
 
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