South Korean Crypto Exchanges Gear Up For Stricter Reserves Requirements

South Korean Crypto Exchanges Gear Up For Stricter Reserves Requirements

Crypto exchanges in South Korea will now be required to maintain bank reserves of a minimum of 3 billion won, which is around $2.3 million as a safeguard in order to improve consumer protections.

The new requirements will go into effect in September and are applicable to all crypto exchanges in the country that have accounts issued from real-name banks locally.

The guidelines

The Korea Federation of Banks (KFB) published the ‘Virtual Asset Real-Name Account Operation Guidelines’ last year in July, which dictate these rules.

The term real-name accounts refers to compliance with the Know-Your-Customer (KYC) policy, which dictates that clients have the same name registered on the exchange as their bank account.

The guidelines dictate that at least cash reserves of about 3 billion won should be maintained, as this is the equivalent of 30% of the daily average deposits that are made on crypto exchanges.

The maximum amount of cash reserves that crypto exchanges are permitted to maintain is about 20 billion won.

While expenses would increase for South Korean crypto exchanges due to the new measures, those that have high trading volumes are not likely to see any major problems in implementing them.

The crypto exchanges

This applies to well-known crypto exchanges in South Korea, such as Bithumb and Upbit. The latter is the largest crypto exchange in the country.

Its representative told local media that they would implement the new guidelines faithfully. Bithumb also said that it was gearing up to comply with the new regime without any problems.

However, the new requirements could pose a problem for smaller trading platforms, particularly the ones that do not offer crypto-to-fiat pairs, or are operating on coin-only markets.

Therefore, there are no bank accounts for these exchanges, which means they do not have to accumulate reserves.

However, some of these exchanges had decided to negotiate with banks to open such accounts in order to ensure their survival in the market.

In addition, they also need to comply with the requirements outlined in the Specific Financial Information Act, which came into effect in 2021.

The details

According to this act, specific information about financial transactions has to be reported, along with its use for preventing terrorist financing and money laundering.

This had seen trading volumes on these exchanges decline because traders had shifted to bigger exchanges that had better compliance policies.

Hanbitco was one such crypto exchange, which had obtained a bank account recently, but an unnamed industry representative said that with the regulations going into effect next month, it could go out of business.

A number of other standards have also been included in the operating guidelines issued by the KBF, which include enhanced KYC, but these will go into effect starting next year.

Last month, new rules that will go into effect in January 2024 were announced by the Financial Services Commission (FSC) in South Korea.

According to the new regulations, local companies that own or issue crypto tokens would have to disclose information, such as their business models, the amount of tokens, and more.