International-based digital currency exchanges must register with the South Korean anti-money laundering body if they want to offer trading in the Korean won, the country’s financial watchdog has stated. The head of the Financial Services Commission (FSC) further clarified that these exchanges must comply with the revised laws that requires exchanges to establish banking relationships and verify users’ identities.
South Korea has raised the stakes for local digital currency trading platforms in recent months. The East Asian nation is one of the world’s largest digital currency markets, and as such, it has sought to ensure all players are well-regulated to curb crime. One of the stipulations for local exchanges has been a strict adherence to AML compliance. And as the leading watchdog revealed, foreign exchanges aren’t exempt from this rule either.
The chairman of the FSC, Eun Sung-soo revealed the AML requirements in response to a question posed by a lawmaker regarding whether Binance exchange has to adhere to revised industry laws, the Korea Herald reported.
“If a cryptocurrency exchange serves local customers with the won-currency settlement, it must register with the Financial Intelligence Unit,”Sung-soo told the lawmakers.
The watchdog was referencing a law that took effect in March 2021 that requires all exchanges to establish relationships with banks with a goal of curbing money laundering activities. Exchanges have had to shape up as banks are wary of partnering with those that have weak internal controls. This has seen many exchanges, including the top ones like Upbit and Bithumb delist several digital assets. Probit, a local exchange, delisted 145 coins on June 1.
The new rule, whose six months-grace period ends in September, will likely cut off several exchanges in Korea. According to local reports, only the Big Four exchanges have secured banking partners. Upbit is banking with K Bank, Korbit’s partner is Shinhan Bank and NongHyup Bank services Coinone and Bithumb.
Banks are turning down partnerships with exchanges, one industry source told the Korea Herald. “…partnering up with crypto exchanges might look like good business but at the moment, especially when markets fluctuate like recently, the risks seem to outweigh the small transaction fees that banks could earn from the partnership,” the banker told the outlet.
For some smaller exchanges, the requirements are way above their reach and they have chosen to shut down voluntarily. As CoinGeek reported, one of those that ceased operations is Daybit. Coinplug, Binance Korea and OKEx Korea have shut down in the past year as well.