Victor Ugochukwu · Dec 14, 2020 . 5min read
South Korea enacts laws making cryptocurrency exchange subject to the whims of banks
South Korea announces legislative amendment for cryptocurrency exchanges to work in tandem with banks to tighten anti-money laundering practices.
By Victor Ugochukwu · Nov 2, 2020 . 6min read
South Korea is tightening its noose on cryptocurrency exchanges within its borders as it has just recently amended an existing law forcing exchanges to be at the mercy of banks.
According to a local news media publication, the Financial Services Commission’s Financial Information Analysis Agency (FIU) announced a legislative amendment to the Enforcement Decree of the Specific Financial Information Act (Special Act). The amendment procedure revised the existing Special Money Law enacted in March. This basically seeks to enforce anti-money laundering moves which are becoming rife among some of the cryptocurrency exchanges.
The core of the amendment is that all financial transactions initiated by cryptocurrency exchanges must now pass through real-name bank accounts. However, the act lists out five requirements for a cryptocurrency exchange operating in South Korea. Top on the list is that the act mandates cryptocurrency exchanges to keep customer deposits separately. The exchange must have also passed the acquired information protection management system certification. And if any of the exchanges err on the provisions of the acts, they could be sentenced. This time to serving jail terms rather than just punitive fine options.
Additionally, the FIU mandates exchanges to manage customer transaction details separately. Lastly, the onus rests on both the banks and the cryptocurrency exchange which the bank has issued a real-name account to ensure there are adequate risk management and financial intelligence procedures in place to enforce strict anti-money laundering compliance. Failure to this will attract penalties to both parties. To reiterate this, an FIU official said
“If a virtual business operator is caught in money laundering, the bank that has transacted with the business will also face astronomical fines,”
South Korea’s new anti-money laundering act will impact the fast growth of cryptocurrency exchanges.
Per the local news publication, South Korea presently has four legally operating cryptocurrency exchanges. Only Bithumb, Upbit, Coinone, and Corbit have real name deposit and withdrawal account contracts with banks in Korea. Although as the FIU personnel said that this would help stem failing cryptocurrency exchanges, it’s still too harsh for growth.
To meet the requirements to have real-name accounts, cryptocurrency exchanges have several hoops to jump. This is basically what cryptocurrency is up against in the legacy banking system. Some of these regulatory bottlenecks have been the bane of banks lack of innovation. Hence, cryptocurrency exchanges and solutions are yanking off a sizeable market from them.
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