South Korean financial industry regulator Financial Services Commission (FSC) plans to halt domestic access to foreign crypto exchanges that are not registered in the country. These trading platforms have been asked to obtain the appropriate licenses by September 24.
Failure to do so will instantly cause their websites to be blocked. Additionally, users who deal in such unlicensed exchanges may face penalties.
Foreign exchanges on Watchdog’s radar
The financial sector watchdog reportedly received a request from its intelligence unit asking that the local websites of 16 foreign crypto exchanges be blocked. A similar notice has been issued to other law enforcement agencies across the country, media said.
The FSC could launch investigations into the 16 foreign crypto exchanges that operate in the country without proper operational authorization and report their violations to the countries where they are registered, according to the coverage.
The 16 foreign crypto exchanges on the list are KuCoin, MEXC, Phemex, ZB.com, Bitglobal, CoinW, XT.com, Bitrue, CoinEX, AAX, ZoomEX, BTCEX, BTCC, Poloniex, DigiFinex, and Pionex.
Requirements and Penalties
One of the requirements for foreign cryptocurrency platforms to operate in South Korea is to obtain certification from Korea’s Information Security Management System (ISMS). Certification requires rigorous maintenance of data relating to anti-money laundering and KYC provisions.
They are also required to follow the guidelines of the specific Financial Reporting Act to operate in the South Korean market. The law provides for up to five years in prison or 50 million won ($43,500) in fines for failing to operate without a proper license. A further ban on new registration of such companies may also be imposed.
In a crackdown last year, nearly 60 crypto exchanges were forced to shut down for failing to meet these requirements. At present, 35 of these companies are said to have licenses to operate in South Korea. These include the top five exchanges – Bithumb, Coinone, Upbit, Gopax and Korbit – which account for over 99% of the local market.
Crypto-friendly image of Korea
Earlier this month, CryptoCom obtained a virtual asset service provider license and registration under the Electronic Financial Transactions Act. These approvals became necessary for the Singapore-based crypto exchange after acquiring payment service provider and digital asset firm PnLink Co. and OK-BIT Co., respectively.
In May, President Yoon Suk-yeol, considered crypto-friendly, took over the office. His government has proposed to postpone the planned crypto-taxation which was to take effect from January 2023 to January 2025.
He said the crypto tax should only come into effect after proper market infrastructure for trading digital assets is in place. One of the components of this infrastructure is the crypto regulations, which are said to be in the works and could be published next year.
Tough times for regulators
However, regulators are struggling to cope with a market where crypto exchanges are legal but there are no specific laws to regulate it.
In the latest issues, the FSC is reportedly investigating illegal overseas remittances related to so-called Kimchi Premium, a trade to profit from the price difference of crypto assets between domestic and overseas cryptocurrency exchanges. .
These illegal transactions were carried out between January 2021 and June 2022 and are estimated at $6.5 billion.
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