24 out of 63 cryptocurrency exchanges in South Korea will likely fail to meet the new requirements and will be forced to close in less than a month.
The regulator assumes that more than a third of South Korea’s cryptocurrency exchanges will stop operating in September, after the new rules for trading cryptoassets come into force. On March 25, 2021, amendments to the Financial Institutions Reporting Act (FTRA) came into force, which require exchanges to obtain a special license to comply with the rules for combating money laundering (AML) and the separation of their own and client assets, with the mandatory maintenance of accounts in the country’s banks (VASP).
The Financial Services Commission (FSC) began accepting applications for registration of cryptocurrency exchanges from March 25, but by the time set by the regulator, not all exchanges have successfully completed this procedure. The exchanges have less than a month, until September 24, for their registration to be approved by the FSC. However, FSC will only register those exchanges that can sufficiently demonstrate the reliability of their anti-money laundering systems.
The tightening of the rules for the operation of Korean exchanges occurs against the background of amendments to the legislation regarding transactions with cryptoassets for individuals. The regulator wants to be legally able to confiscate cryptocurrencies from citizens who evade taxes. Changes to the legislation will be submitted to the parliament of the republic by September 3.
In May, the South Korean authorities approved a plan to introduce a 20% tax on profits from cryptocurrency trading. This will affect citizens who earned over $ 2 thousand a year with the help of cryptocurrencies. Income below this amount is not taxed. The new rules will come into force on October 1, 2021. Cryptocurrencies in South Korea are included in the “other income” category.
While the Korean government has no intention of banning cryptocurrencies, it certainly does intend to regulate this market. Sharing financial flows, licensing, concluding agreements with banks, auditing and certification by the Internet Security Agency (KISA) are all unprofitable for small startups and branches of foreign exchanges. The introduction of new requirements may result in the ousting of small players and monopolization of the cryptocurrency market by the largest exchanges in South Korea: Bithumb, Upbit and Korbit.
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