In South Korea, more than 60 cryptocurrency exchanges must notify their customers about a partial or full suspension of trading by Friday midnight, a week before a new regulation comes into effect.
The new regulations require exchanges to register with the Financial Intelligence Unit by 24 September, providing a security certificate from the Internet Security Agency. The exchanges are also required to partner up with banks to ensure real-name accounts.
The affected trading platforms have been instructed not only to inform their customers that they will be halting operations, but they will also need to provide detailed information about how their users can withdraw their funds.
“Should some or all services need to be closed, [cryptocurrency exchanges] should notify customers of the expected closing date and procedures to withdraw money by at least seven days before the closure,” South Korean Financial Service Commission (FSC) said in a statement published by Reuters on Friday.
Reuters noted that nearly 40 exchanges have disclosed that they will be suspending all their services as they are yet to comply with the registration requirement.
Another 28 trading platforms, including ProBit, Cashierest, and Flybit, have already secured security certificates, which will enable them to continue operating in the country without making deals in Won.
According to reports, smaller exchanges had issues partnering with banks because most traditional financial institutions chose not to collaborate with these crypto-related firms due to accountability and hacking risks.
With crypto-exchanges suffering, South Korean crypto-traders may have to brace for losses worth $2.6 billion, as per reports.
According to the Head of the Cryptocurrency Research Center at Korea University, this mass shutdown could eliminate 42 so-called ‘kimchi coins’ – Alternate cryptos listed on local exchanges and traded mostly in Korean Won. In South Korea, other digital coins make up about 90% of all crypto-trading volume.
With these regulations coming into force soon, there might be “huge investor losses,” according to Cho Yeon-haeng, President of Korea Finance Consumer Federation.
“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,” he said.
The regulations will also affect global exchanges offering Won trading. The FSC has sent a notice to 27 foreign crypto exchanges that run operations for Korean traders.
In recent months, Seoul has cranked up its control of the country’s cryptocurrency industry to rein in illicit activities such as money laundering, tax evasion, and what regulators view as a risky financial activity among young retail traders. In 2022, the government will also introduce a crypto capital gains tax; investors who make over $2,135 in trading profit will face a 20% tariff.
Regulators say crypto scams in South Korea are becoming bigger and more frequent, aided by the industry’s rapid growth. Crypto fraud reports increased 42% in 2020, regulators say, and several crypto exchanges in addition to Bithumb and Coinbit have been accused of fraud. In June, for instance, police arrested four executives of now-defunct exchange V Global on fraud charges; authorities say the case involves 52,000 victims and losses of over $1.9 billion.
In addition to the new rules, the government is setting up a new crypto bureau this month that will operate under the FSC to supervise the country’s digital assets. South Korea’s regulators aren’t alone in their clampdown on the crypto industry: Regulators worldwide from China to the U.S. are seeking tighter control for some of the same reasons; to stop financial crimes and improve investor protection.