South Korea’s upcoming mandatory registration for crypto exchanges might potentially erase up to $2.6 billion worth of assets. A report unveiled this news on September 13, noting the Financial Services Commission (FSC), South Korea’s financial regulator, requires all exchanges operating in the country to register with it by September 24. Reportedly, the watchdog is enforcing the mandatory registration under the Financial Transaction Reports Act.
According to the report, part of the registration needs all crypto exchanges to secure real-name bank accounts for their clients. Allegedly, this move will ensure that all crypto exchanges that secure licenses comply with South Korea’s anti-money laundering and know-your-customer (KYC) procedures. However, banks have proven difficult to work with, seeing as they are afraid offering such services to crypto exchanges might hold them liable for any illicit activities.
At the moment, around 40 exchanges out of 60 in the country are yet to register. Failure to register before the deadline will see the FSC force the exchanges to shut down. To this end, the regulator has directed unregistered exchanges to inform their customers of potential closure before September 17.
Experts warn of an impending bank run
With exchanges having only 10 days before the deadline, it is evident that most of the exchanges will not get registered by the 24th. With this in mind, experts have come out to warn of a potential bank run, where users of small unregistered exchanges will rush in to withdraw their funds before the platforms shut down.
Lee Chul-yi, the Head of Foblgate, a medium-sized exchange in the country, said,
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of altcoins listed only on small exchanges. They will find themselves suddenly poor. I wonder if regulators can handle the side-effects.”
Reportedly, approximately 90% of crypto trading in South Korea is completed in altcoins, with a substantial number of these altcoins being Kimchi coins, coins developed by South Koreans. According to Kim Hyoung-joong, the Head of the Cryptocurrency Research Centre at Korea University, estimates that 42 Kimchi coins will vanish. Combined with a potential bank run, the disappearance of these coins could lead to the loss of $2.6 billion worth of crypto tokens from the market.
Cho Yeon-haeng, the President of Korea Finance Consumer Federation, also believes that investors are set to incur huge losses after exchanges suspend trading and assets are frozen. He added that many of the smaller exchanges are unlikely to offer protection as they face imminent closure.
This news comes as crypto exchanges continue pulling out of South Korea to avoid repercussions that come with failure to register with the FSC. For instance, Bitfront, the crypto exchange business of LINE, a Japanese tech company, announced plans to stop providing services in the country. Before this, Binance, which has been a target of several financial regulators across the globe, halted all Korean won trading pairs and payment options to comply with local laws.