- South Korea steps up efforts to regulate cryptocurrency exchanges
- Real name virtual bank accounts are now a mandatory requirement for all cryptocurrency trading platforms
- As many as 97% of local digital assets exchanges could face extinction
South Korea’s cryptocurrency industry faces stifling restrictions, as the country’s parliament recently approved legal amendments supporting a real-name trading system as part of Anti-Money Laundering (AML) compliance.
Bithumb develops the Value Network Domain Name System (VDNS) which was voted by the parliament to implement it as an identity authentication system to comply with global requirements.
The requirement for real-name virtue bank accounts is aimed at ensuring that virtual assets-handling companies in South Korea are in compliance with the recommendations of the International Anti-Money Laundering Organization, Financial Action Task Force (FATF).
As per the amendment, which is backed by the Korean Blockchain Association, crypto exchanges and their representatives are now under the purview of the Financial Commission’s Financial Information Analysis Institute (FIU) and report directly to them.
Non-conformity to the rules could result in a 5-year jail term and a fine of up to 50 million Won ($42,000 US Dollars).
South Korean regulators seem to strongly oppose cryptocurrencies, as can be proven by their approval of such stifling know-your-customer (KYC) restrictions.
As a result, as many as 97% of local digital assets exchanges could be in danger of extinction.
Stressing on Stifling KYC Restrictions
As per the new guidelines, local cryptocurrency markets are obligated to share users’ transaction data with banks, while traders themselves can only use bank accounts in their legal name that matches the name on their trading account.
Prohibiting the use of anonymous accounts in digital assets trading comes on top of increased resolve by Seoul to reduce South Koreans’ fascination with cryptocurrencies.
The parliament’s decision to adopt the VDNS system will allow users to issue non-public proofs on the blockchain, and a way to authenticate such proofs against the issuer’s domain name linked to their addresses, thereby meeting the demand for transactional privacy as per FATF requirements.
KYC Compliance is Bad News for Cryptocurrency Exchanges
Unfortunately, stressing on strict regulations for crypto trading is putting many Crypto platforms in a fix, as showcased by the recent closure of Cryptobridge in early October 2019.
The trading gateway announced that they would officially terminate all their services “due to negative internal and external influences.”
Local news outlets reported that apart from the country’s 4 largest players (Upbit, Bithumb, Coinone and Korbit), many small and mid-sized exchanges cannot open real-name virtual accounts for their users as a result of banks’ reluctance.
In reality, since the country introduced a real-name trading system for crypto in 2018, only the big four exchange platforms have managed to initiate corresponding relationships with local banks.
With the latest amendment, real name virtual bank accounts are now a mandatory requirement for all cryptocurrency trading platforms, which is not good news for most exchanges in the country.
