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Thu, March 30, 2023 | 23:43
Rush of withdrawals expected among cryptocurrency owners before stricter rules are applied
Posted : 2021-09-22 16:00
Updated : 2021-09-23 11:17
Lee Kyung-min
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Financial Services Commission Chairman Koh Seung-beom / Korea Times file
Financial Services Commission Chairman Koh Seung-beom / Korea Times file

By Lee Kyung-min

A large number people who own cryptocurrencies issued and traded by small exchanges are expected to withdraw the virtual assets ahead of Friday, the deadline imposed by the Financial Services Commission (FSC) for digital currency trading platforms to apply for authorization as a valid market player.

The Korea Financial Intelligence Unit (KoFIU) under the FSC said only four out of more than 60 operators ― UPbit, Bithumb, Coinone, and Korbit ― have met regulatory requirements by obtaining a certification of Information Protection Management System (ISMS) and commercial lender-issued real-name accounts through which the coins are traded transparently.

The strengthened rules on cryptocurrency transactions will divide the market into either won-based ones where the coins can be traded in the country's currency or bitcoin-based exchanges. The rest that fail to pass the regulatory bar will no longer be able to operate here.

Of more than 30 that failed to obtain ISMS certification, two thirds have already closed or are in the process of shutting down. Chances are high that the remaining one third will also end up closing down, since it takes months to obtain the necessary certification from authorities and real-name accounts from banks.

The FSC expects the amount of investor losses would be limited, because it ordered the soon-to-be-disqualified operators to inform their investors of probable shutdowns by Sept. 17.

Users of small exchanges can seek the help of law enforcement and financial authorities if they are unable to withdraw or transfer their coins or money from their accounts. Reports can be filed with the police, FSS and KoFiU.

Market watchers say up to 3 trillion won ($2.5 billion) in investor losses are expected once the exchanges are forced out. A total of 159 "Kimchi coins" ― digital coins traded only in Korea ― are listed on CoinMarketCap, a global cryptocurrency operator, while fewer than 100 are listed on one of Korea's major exchanges. This means investors with coins and cash parked in 60 small exchanges are at risk.

Competition among the four major exchanges will become fiercer to attract the former customers of their small peers unless the KoFiU refuses to issue operating licenses to any of them in the next three months. But market watchers say that is an unlikely scenario.

Arbitrary listings and de-listings of digital coins will be strictly prohibited by the FSC, since most consumer complaints cited a lack of market regulation and subsequent price volatility fueled by speculators.

Discussions will continue over renewing real-name exchange accounts between operators and commercial lenders.

NongHyup Bank extended real-name account services with Bithumb and Coinone for six more months. K bank did the same with UPbit. Korbit and Shinhan Bank are also discussing an extension.

Banks will continue to bear the responsibility of identifying high-risk clients, as well as strengthening monitoring of financial transactions and user ID verification procedures to protect consumers against fraud. The strengthened measures also allow customers to recover their investments in the event that some exchanges are shut down.

Small exchanges that failed to meet the new requirements are expected to halt won-based trading and run the exchanges on the BTC market, in order to bide time until a second wave of increase in the number of exchange.

The BTC Market is practically the only option for about 24 exchanges that have ISMS certification but lack real-name accounts. Financial authorities view this as a better alternative to an outright shutdown.

Once real-name accounts are issued, the small exchanges will be able to re-enter a market long criticized as being nothing more than a gamble by those seeking one-off, windfall gains.


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