As September 24th is fast approaching, the deadline for South Korean crypto exchanges to meet new compliance criteria, the majority of Korean crypto exchanges will be shut down. This is because all operators are expected to submit requests for an official license with the Financial Services Commission (FSC) on or before the date.
For much of the past year, industry actors and minor exchange representatives have fought the new regulations, but to no avail. According to insiders, up to 40 of the estimated 60 crypto businesses in the country will be forced to shut down given the official license.
The requirement that all exchanges present proof that they are functioning using real-name accounts at South Korean banks is at the heart of their issue. The FSC has justified this by arguing that there is a high demand from customers for more protection for their assets held at smaller crypto platforms.
Except for the country’s top four trading platforms, South Korean banks have largely declined to participate in any risk assessment procedure for applicant exchanges.
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Customers have expressed a strong desire for stronger safety for their money kept on smaller crypto platforms, according to the FSC. These four exchanges – Upbit, Bithumb, Korbit, and Coinone – already account for over 90% of total traded volume in South Korea, and analysts have argued in recent months that the FSC’s new framework will further entrench the country’s crypto industry as a monopoly.
A professor at Korea University and the head of the Cryptocurrency Research Center, Kim Hyoung-Joong, predicts that the mass exchange closures will result in the abolition of 42 “kimchi coins,” which are smaller altcoins that are listed on smaller platforms and traded against the Korean won.
While the head of local crypto exchange Foblgate, Lee Chul-Yi, told the Financial Times that:
“A bank run-like situation is likely near the deadline, as investors are unable to cash out their holdings of ‘alt-coins traded on minor exchanges. They will become impoverished overnight. I’m not sure if regulators will be able to deal with the consequences.”