The heat is on for South Korean exchanges, who have suffered a blow in their quest to gain banking contracts that will ultimately determine if they can keep operating after a slew of government regulations to police trading platforms comes into force on September 25.
After the country’s first piece of crypto-specific legislation promulgated in March this year, exchanges were handed a six-month grace period during which they must obtain real named-authenticated banking contracts with domestic banks, as well as information security management (ISMS) certification and satisfy other criteria, including introducing anti-money laundering (AML) protocols.
A growing number of exchanges have now put AML systems into place and gained their ISMS certificates, but banking remains a thorn in the side for most. Not even the “big four” exchanges – Upbit, Bithumb, Korbit, and Coinone – have yet received assurances that their own existing deals, with the neobank K-Bank, as well as the commercial banks NongHyup and Shinhan, will be renewed.
Although many in the sector have told news outlets they are confident that the likes of Upbit and the rest of the “big four” will either renew with their existing partners after a successful past few months or find new partners, there is a large chasing pack of trading platforms determined to make the deadline.
But doors appear to be closing to many of these. Banks have been handed the responsibility to conduct their own risk assessment checks on trading platforms, aware that they will have to bear the onus of blame should an exchange, say, suffer a security breach or fraud allegations.
Previously, Shinhan and NongHyup’s three biggest commercial rivals – Kookmin, Woori and KEB Hana – have ruled out the prospect of partnering with exchanges “for the foreseeable future.” But a fresh blow has come from BNK Busan, which had previously expressed a strong interest in working with exchanges.
BNK officials visited banks that work with exchanges to find out more – but per Asia Kyungjae – that interest has now gone cold.
A BNK spokesperson ruled out a partnership, explaining:
“There are advantages to partnering with exchanges such as new account creation and banking fees, but we decided that risks such as money laundering-related concerns were greater.”
Given the success of K-Bank’s Upbit partnership, some have been looking to the neobank sector in hope of a lifeline. But there will not be any forthcoming from Toss, one of the nation’s fastest-growing fintech unicorns. Toss will launch Toss Bank in September – as a direct rival to K-Bank and Kakao’s KakaoBank.
But per Dalian, Toss chiefs are not in a rush to find an exchange to team up with. While they did not rule out partnering with crypto trading platforms, officials stated that they had “no specific preparations or plans” to find an exchange partner – although they claimed that that could change before launch.
Meanwhile, the top financial regulator, the Financial Services Commission (FSC) has held a second set of offline meetings with 30 South Korean exchanges – and has conducted a full “due diligence” audit at one major (unnamed) exchange. The FSC has recently been handed the lion’s share of control over the crypto sector, and has been keen to flex its muscles – particularly after a raft of criticism from political rivals claiming it has “neglected” the crypto sector.
According to a news outlet, the FSC will carry out week-long checks at certain exchanges – and the group of exchanges in question comprised 20 that already have ISMS certificates and 10 that are in the process of obtaining them. The exchanges were briefed in two groups, each for about 40 minutes, in meetings held at FSC premises yesterday.
Meanwhile, the Segye Ilbo reported that the FSC has also been alerted to the fact that some exchanges may seek legal means to keep hold of their clients’ funds. Unnamed sources close to the regulator and other industry insiders have reportedly expressed the worry that some will execute “planned bankruptcies” on the cusp of the grace period deadline in a bid to avoid having to refund their customers – or even abscond with their money and tokens.