As new de-anonymity rules come into force in South Korea, banking organizations have been forced to implement new burdensome compliance checks on businesses undertaking exchange-based activities. This has forced banks to become even more critical when evaluating digital transaction accounts, a prerequisite for South Korean cryptocurrency exchange ventures to operate in the country.
Coinpia, one of South Korea’s fledgling cryptocurrency exchanges has announced that it is suspending trading activity due to banking-related problems. In a statement on the exchange’s website, the company publicised its position:
“Suspension of transactions due to suspension of KRW deposits… KRW deposit interrupted in sustained accordance trading halt guide(lines) (sic)”.
The announcement articulates the changing legislative environment with new anonymity guidelines impacting banking operations between banks and cryptocurrency exchanges. Compliance is mandatory, Coinpia was unable to open a bank account accepting South Korean Won deposits due to its involvement in crypto trading.
The reluctance from banks, excluding the big four Korean exchanges, illustrates the disparity between lawmakers who stated the new regulation wouldn’t result in a ‘ban’ whilst banks have become unnerved at the increased compliance demands of accepting new cryptocurrency business.
The Financial Supervisory Service had recently inspected the top six South Korean banks due to their involvement in virtual currency bank transfers. The Korean Customs Service similarly reported $600 million had been found lurking in Korean exchanges with illicit links to organized crime.
The January 30th deadline for real-name account system compliance has passed. Cryptocurrency exchanges in South Korea must comply with this regulation. The South Korean’ Blockchain Association, speaking with Business Korea, stated; “We are seeking out ways to solve problems by launching a self-regulation commission and imposing duty to prevent money laundering.”
The failure of Coinpia, and other smaller exchanges, to find suitable banking support will impact South Korean investors. This could lead to a South Korean monopoly which could hurt exchange-based competition and innovation.
The fallout for customers will result in a greater dominance by the larger cryptocurrency players in the South Korea exchange ecosystem. The banks and trade associations inability to create alternative banking measures that comply with the regulations, whilst at the same time providing some assurances for the banks, have failed to materialise.
Coinpia has stated that all withdrawal-based refunds will be processed in compliance with South Korean consumer regulation rights. The company has announced that it is exploring alternative processes to help the exchange promote cryptocurrency services in the future.
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