Extensive investor losses are expected as roughly two thirds of South Korean crypto exchanges struggle to meet toughened registration rules.
On September 6, the Korea Financial Intelligence Unit and the Financial Supervisory Service held a virtual meeting with virtual asset service providers (VASPs) about their business registration requirements.
Mass shut down
Approaching the September 24 deadline for foreign and local crypto exchanges to register as legal trading platforms with the authorities, almost 40 out of estimated 60 local operators are about to be shut down, the Financial Times reported, citing “industry insiders and regulators.”
According to the report, South Korean cryptocurrency traders are facing $2,6 billion losses as the deadline approaches.
“For VASPs that are unable to meet the requirements and are terminating their operation, the authorities advised them to take measures to minimize damages to service users by issuing advance notices about their business termination at least 7 days prior (until Sep. 17) to the expected termination date, informing users about the withdrawal procedures being available until at least 30 days after terminating services and discarding users’ personal information according to the relevant rules,” read the official press release, following the September 6 virtual meeting.
To be able to register with the authorities, South Korean operators must partner with local banks to open real-name bank accounts for customers, but, as the report pointed out, local lenders were reluctant to take that route, scared of being exposed to money laundering and other financial crimes.
“Huge investor losses are expected with trading suspended and assets frozen at many small exchanges as customer protection will not likely be the priority of those exchanges facing an imminent closure,” Cho Yeon-haeng, president of Korea Finance Consumer Federation told Financial Times.
Goodbye kimchi coins
According to Kim Hyoung-joong, head of the Cryptocurrency Research Center at Korea University, who clarified the most intermediate consequences of the mass shutdown of smaller exchanges for Financial Times, the regulatory overhaul could eliminate 42 altcoins, also referred to as “kimchi coins,” which are traded on local exchanges and denominated in the Korean won.
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of ‘altcoins listed only on small exchanges,” Lee Chul-yi, head of Foblgate crypto exchange told Financial Times.
“They will find themselves suddenly poor. I wonder if regulators can handle the side-effects,” he added.
Following the US dollar and the euro, the Korean won ranks as the third most common currency used for crypto trading, according to the report, which reminded that the regulations will also affect foreign exchanges that run operations for Korean traders and offer won trading.
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