In a bid to restore stability to South Korea’s digital currency sector following the turbulence of 2022, regulatory authorities are introducing fresh measures to safeguard investors against unforeseen disruptive events.
Commencing this September, all digital asset exchanges operating in South Korea and holding real-name local bank accounts will be required to set aside a minimum of KRW 3 billion ($2.3 million) for reserve purposes. These new regulations, referred to as the “Virtual Asset Real-Name Account Operation Guidelines,” gained legislative approval in July, following an initiative by the Korea Federation of Banks (KFB).
Under the new guidelines, service providers are compelled to reserve 30% of their daily deposits as a contingency measure, with specific limits set for exchanges with substantial trading volumes. The rulebook from KFB outlines that the reserve stipulations applicable to digital currency exchanges operating with real-name local bank accounts could scale up to KRW 20 billion ($15 million).
These protective measures seem to be geared towards users who have undergone the Know Your Customer (KYC) verification procedures and possess matching identities on both their fiat bank accounts and digital currency exchange accounts.
An executive from a digital currency exchange stated, “The explicit requirement of a minimum of 3 billion won was highlighted when the operational guidelines were unveiled last month. However, banks have been advocating for a reserve fund ‘sufficient to mitigate any issues that may arise in the event of an incident’ during the process of establishing a real-name account issuance contract.”
As the implementation deadline looms just a week away, South Korean exchanges are racing against time to achieve compliance. The largest trading platforms in South Korea have affirmed their full readiness to meet the new mandates ahead of the September cutoff.
“We are diligently preparing in accordance with the guidelines provided by the Korea Federation of Banks,” conveyed a spokesperson from Upbit.
Other major exchanges including Gopax, Korbit, and Coinone have echoed their endorsement for the new regulations, with Bithumb committing to “faithfully implement” the stipulations.
While exchanges primarily dealing in the local currency appear well-equipped to adhere to the freshly established rules, exchanges reliant on cryptocurrencies are anticipated to encounter challenges in their efforts to meet the impending deadline, due to potential capital constraints.
Incoming Regulatory Wave
Investors within South Korea’s digital currency realm are bracing themselves for an influx of new regulations issued by multiple regulatory bodies. Starting in 2024, the nation’s Financial Services Commission (FSC) will mandate exchanges to provide comprehensive disclosures of their operational models, tokens, and internal accounting policies.
Simultaneously, the KFB is progressing towards enhanced KYC regulations for digital currency exchanges, serving as an additional layer to the existing reserve prerequisites. These new rules require all public officials to divulge the extent of their digital currency holdings. The FSC is also amending its rulebook to encompass this novel disclosure policy for employees.
