60% Of Korean Crypto Exchanges Expected To Close With New Regulation
Failing to meet South Korean regulators’ impossible new requirements is likely leading to closure of tens of crypto exchange operators in the country.
The deadline for South Korean crypto exchanges to meet new compliance requirements is approaching quickly, with all operators expected to submit requests for an official license with the Financial Services Commission (FSC) no later than September 24th.
There has been much of disagreements from within the industry towards the nearly impossible new rules to follow, but the regulator hasn’t reconsidered the new regulation. Now people close to the matter told Financial Times that they expect close to 40 of the country’s estimated 60 crypto operators will be forced to shut down.
The issue with the new regulation is that the exchanges are obligated to show evidence that they are operating using real-name accounts at South Korean banks. The FSC has justified this by arguing that there is a high demand from customers for more protection for their assets held at smaller crypto platforms. The real issue is that South Korea’s banks have, for the most part, refused to engage in any risk assessment process for applicant exchanges, except for the country’s top four trading platforms. So it more seems like making the requirements so difficult that only big players can participate.
Four exchanges – Upbit, Bithumb, Korbit and Coinone – account already for over 90% of South Korea’s total traded crypto volume, and experts have in recent months made the case that the regulator’s new framework is leading to even further monopolizing the country’s crypto market.
Kim Hyoung-joong, a professor and head of the Cryptocurrency Research Center at Korea University, predicts that the mass exchange closures will eliminate 42 “kimchi coins” – a moniker for smaller altcoins that are listed on smaller platforms and traded against the Korean won.
Lee Chul-yi, head of local crypto exchange Foblgate, commented:
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of ‘alt-coins’ listed only on small exchanges. […] They will find themselves suddenly poor. I wonder if regulators can handle the side-effects.”
Altcoins estimatedly account for 90% of traded volume in South Korea’s crypto markets. The FSC has reportedly advised those exchange operators who expect to shut down to notify their clients no later than September 17.
Cho Yeon-haeng, president of Korea Finance Consumer Federation, pointed out an obvious issue that customer protection is unlikely to be the priority for those exchanges facing imminent closure and that “huge investor losses” are therefore expected due to the freezing of assets and suspension of trading on smaller platforms.
The regulatory pressure is not affecting the local players. International exchange operators, such as Binance has already pre-emptively halted Korean won trading pairs this summer not to cause trouble with the Korean regulator.
The new regulatory measures apparently have been designed to lower Koreans’ enthusiasm for crypto trading amid concerns that retail investors, especially the young, are borrowing excessively in order to trade as they struggle with suppressed wages, a frozen job market and rising real-estate prices.
