South Korea’s financial sector watchdogs Financial Services Commission (FSC) is planning to stop foreign crypto exchanges that are not registered in the country from having any domestic access to South Korea. These exchanges have been given until 24th September to obtain proper licenses. Failure to do so will result in the instant blocking of their websites and users who deal with such unlicensed exchanges will face stiff penalties.
The financial regulators reportedly received a request from its intelligence unit to block the websites of 16 foreign crypto exchanges. Media reports also speculated that a similar request was circulated to other law enforcement agencies in the country. The 16 foreign crypto exchanges on the list are KuCoin, CoinEX, AAX, ZoomEX, BTCEX, BTCC, Poloniex, DigiFinex, MEXC, Phemex, ZB.com, Bitglobal, CoinW, XT.com, Bitrue and Pionex.
For a foreign cryptocurrency platform to operate in South Korea, one of the requirements is for the platform to obtain certification from the Korean Information Security Management System (ISMS). This certification advocates for careful data management related to anti-moneylaundering and KYC provisions.
To operate in South Korea, the companies are also expected to follow the guidelines of the Specific Financial Information Act. The Act also stipulates a fine of 50 million won ($43,500) or up to five years in prison for operating without a due permit. These firms can also be banned from fresh registration. Nearly 60 crypto firms were forced to shut down last year for failing to meet these requirements. Right now, 35 of those companies have licenses to operate in South Korea. These 35 included the top five exchanges which account for over 99% of the local market – Bithumb, Coinone, Upbit, Gopax, and Korbit.
South Korea’s President Yoon Suk-yeol who took over in May is believed to be crypto-friendly. His administration has proposed to defer the planned crypto taxation that was to begin in January 2023 to January 2025. He said that crypto tax should kick in only after a proper market infrastructure for digital assets trading has been laid down. One of the components of this market infrastructure is crypto regulation which is believed to already be in the works and could be released next year.
The financial regulators are still having a hard time coping with a market where crypto trades are legal but without specific laws to regulate it. In the latest issue, the FSC is investigating illegal overseas remittances tied to the kimchi premium (a trade to benefit from the differences in price in crypto assets between foreign and domestic cryptocurrency exchanges). These illegal transactions are believed to be to the tune of $6.5 billion and were made between January 2021 and June 2022.
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