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| The logo of Upbit, the nation's largest crypto exchange, is seen in front of its headquarters in Seoul in this undated file photo. Yonhap |
By Lee Min-hyung
Small startups with little capital will no longer be able to launch crypto exchanges here, as only those with a reserve fund of at least 3 billion won ($2.27 million) can operate crypto exchanges from September.
The rule ― introduced by the Korea Federation of Banks ― will become effective from Sept. 1, with a view to ensuring the safety of customers against possible losses incurred from exchange security breaches or network problems.
The fund will be used to provide immediate compensation to users in case of such financial fiasco. Exchanges should also set aside 30 percent of their users' daily average deposit if the figure tops 3 billion won. They should do so with a maximum reserve of 20 billion won.
This means major exchanges ― such as Upbit ― should pile up more than 3 billion won for the reserve fund.
The introduction of the regulation will prevent smaller players without ample capital reserves from expanding their business into exchange operations.
This came as a responsive measure to minimize customers' possible losses at a time when even some once-promising overseas exchanges such as FTX filed for bankruptcy abruptly.
The collapse of globally popular cryptocurrencies, including Luna, led to calls for financial watchdogs to toughen rules on the operation of crypto exchanges here, as investors cannot receive complete compensation from any crypto-related fiascos due to the lack of a regulatory system.
The initial operational cost will rise further for any companies preparing to launch new exchanges here, as they are required to build an anti-money laundering system for more secure operation of their trading services.
Industry officials said few small startups will push for the launch of crypto exchanges due to the heightened regulatory hurdle.
"The crypto market is already being dominated by only five major exchanges whose market share reaches more than 99 percent here," a crypto industry source said. "It will be extremely tough for any small companies to generate noteworthy outcomes by launching their own exchange, as not just the top five major exchanges, but some other overseas counterparts ― including the world's largest exchange, Binance, are also seeking to expand their footing in the Korean market."
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