9 Out of 10 Exchanges Will Close in South Korea

In South Korea, about 200 cryptocurrency exchanges opened for business since 2017. In the aftermath of that crypto boom at the end of 2017 and into 2018, several restrictions were put on crypto trading in the country in an effort to protect traders from wild speculation.

Since the amendment to the Special Act on Financial Transaction Information passed National Assembly in a unanimous vote last week, cryptocurrency exchanges are expected to close up shop in the next year and a half when the measures outlined in the amendment come into full effect. Of the 200 that remain in the ecosystem, there were roughly 500 exchanges at the height of the boom from 2017 through 2018. Condolences to those who lost their funds from cut and run, but the market is expected to completely change by September 2021.

The essence of the new law is the incorporation of institutional rights of cryptocurrency exchanges. First, exchanges must report their transactions ledgers to the Financial Information Unit (FIU) by September of 2021. Exchanges must also be compliant with the real-name bank account rule and have an ISMS certification from the KISA.

Doing business with cryptocurrency without going through the reporting process will land offenders in prison for 5 years with a possible fine ranging up to about $41.4 million. In light of this, a large-scale withdrawal of cryptocurrency that has been used for money laundering will be withdrawn from exchanges in the next year and a half. Furthermore, it is highly expected that about 190 of the 200 remaining exchanges will exit the market on account of the fact that they can’t or won’t comply with the new regulations. This may lead to further distress in the industry since some exchanges may close abruptly without warning and capture all funds remaining on the platform. Condolences to those who may suddenly lose their assets off of future-defunct trading platforms.

An official in the matter pointed out that although the banks that issue the real-name accounts for compliance aren’t necessary to trade cryptos or even ensure the practices of the exchanges are honest, they ensure that there is the right amount of liquidity at exchanges to back up the transactions that are made on their platforms. As a result of their new requisite financial supervision, exchanges will be under far greater substantial economic burden and simply disappear.

Financial authorities including the Commissioner of the Financial services Commission (FSC) have been strongly inclined to passing the new law for some time since it ensures that cryptocurrency usage for money laundering will be mitigated. Furthermore, the new law brings the country closer to full compliance with the guidelines set out by the FATF board which already affirmed South Korea’s apparent push toward strict observance international financial guidelines.

It has been noted that this new law, although monumental, is still just a step in the march towards the balance between adoption, usage, and regulation. the Korea Blockchain Association added that they would be working closely with the legislature and keeping a keen eye on the outcomes of the new law in order to refine future regulations.

Additionally, taxes are sure to come out of the new law. This assertion goes unchallenged across all cults of mindset in the Korean blockchain and cryptocurrency circles. Some ministry officials feel that cryptocurrency trading should be grouped into capital gains while others would prefer a per-transaction fee. Others meantime feel that cryptocurrency should simply be viewed as an investment asset rather than a commodity or currency.

Another certainty is that as companies scramble for compliance and users wait for the consequences of such moves, all in the industry will feel the benefits and detriments equally.

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