In a major statement from the Crypto sector in South Korea, Upbit has become the first exchange to register with the Financial Services Commission’s (FSC’s) Financial Intelligence Unit (FIU). This development comes after crypto exchanges in South Korea were dealt a huge blow when all of the exchanges (including the “big four”), failed their regulatory consulting audits.
In June, the regulatory body, the FSC teamed up with some government bodies and state-owned I.T firms to investigate corporate accounts, as well as exchanges “coin management and investor protection” protocols. Police officers and external contractors from the private sector were drafted for this exercise. The exchanges came up short as they all failed their audit tests.
In July, it was announced that the audit process of the previous month had uncovered the fact that some of the exchanges were using Fraudulent banking operations. Some of the cases were even referred to the prosecution service. All of these were happening with less than two months to go until the ultimatum that was given by the Financial Services Commission was up.
The regulatory body had directed that from September 24, all digital asset exchanges will need to use their real names and social security numbers in verifying their banking protocols and accounts. A failure to do this would mean facing the risk of closure. Last week, the FSC turned down a last-minute industry attempt to extend the deadline by a further six months.
This directive has led to fears of a crisis that would involve these exchanges shutting down as the deadline draws near. Because of this, the banks have been reluctant to offer their services to exchanges, particularly after being told by the government that offering such services means they must absorb all the associated money laundering-related risks.
This is why Upbit’s application for an operating license has brought a certain kind of relief to the sector and has given the South Korean financial regulators the confidence that “at least one or two” others will follow in Upbit’s footsteps before the end of August. This sentiment was echoed by Doh Kyu-sang, the FSC’s Vice Chairman when he was quoted stating that one or two trading platforms were ready to submit their applications before the end of August.
Now, Upbit which has a 24h trading volume of $8.40 billion and a market share of 7.84% will have to wait for up to three months to see if the FSC’s Financial Intelligence Unit (FIU) will approve its application after reviewing its documents. Bithumb (Upbit’s biggest rival) looks set to be next in line to submit its paperwork with Korbit and Coinone — the other members of the “big four” — also hopeful of submitting their applications before the deadline.
There’s the real possibility of smaller exchanges not meeting up with the deadline and the FSC is bracing up for the closures of these exchanges as they try to mitigate fallout by issuing protocols for exchanges looking to suspend their services. The FSC and FIU have sent a joint letter to “about 40 of these smaller exchanges, “asking them to agree to a guide for refund procedures” in case of business closure,” and ensuring they issue clear notices to their customers if they do decide to close shop.
In the joint letter, the FSC and FIU warned exchanges they must give at least seven days notice before closing. This period of notice will afford customers the time to conclude their transactions and other businesses with the trading platforms. The regulatory bodies also insisted that “support systems” should be maintained for at least 30 days after closure so that users can withdraw their money.
The regulators also directed that a procedure should be put in place to assist the legal claims of users who wish to complain about the damages caused during business closures. And trading platforms were told to maintain their existing websites even in the event of their closures to provide customers with specific information like contact and customer service details.