Following the September 24 deadline posted by South Korea’s financial authorities, only four major crypto exchanges were cut namely Upbit, Bithumb, Korbit and Coinone. These were the only exchanges able to comply with the requirements set by government financial regulatory bodies including the country’s Financial Services Commission (FSC), limiting user options for trading platforms.
One of the requirements was to establish real-name accounts in partnership with local banks. This will allow users to buy and sell cryptocurrencies with Korean Won (₩) and administrative bodies to regulate transactions within anti-money laundering standards.
Other domestic exchanges including Gopax, Huobi Korea and Gdac halted their trading services since they were not able to secure partnerships with local banks. They were only able to fulfil one requirement which is to be certified for information security.
One of the standards set for the 29 crypto exchanges that met the deadline was to put up an anti-money laundering system called the ‘travel rule’. It was created by the Financial Action Task Force, an intergovernmental anti-money laundering organisation, for virtual asset and digital wallet services providers.
According to a report by Korea Herald, Upbit, the largest crypto trading platform in South Korea, managed to create its system run by the company’s subsidiary. Meanwhile, Bithumb, Coinone and Korbit launched a joint venture in developing a travel rule system.
A few market stakeholders including automated crypto trading platform Coinrule associated with various exchanges like Binance, BitMEX, Coinbase and Kraken welcomed the regulatory news by the South Korean government.
‘News of crypto bans in China, Korea and elsewhere have been a recurring story in the crypto industry for years,’ Chief Operating Officer and co-founder of Coinrule Oleg Giberstein told Verdict in an interview.
‘In the case of Korea specifically, I would consider the news as overall positive for the market. Korea is not banning bitcoin or crypto; it is regulating the market. Having regulatory clarity is a good step for exchanges,’ he added.
According to Oleg, the regulations approved by the South Korean government will consolidate the country’s leading position in the market and build on it which will attract more users in the long run.
Meanwhile, South Korea’s opposition party, People Power Party, called upon the delay in implementing the crypto tax legislation that is set to take effect by January 1, 2022.
The legislation is proposed to levy the 20% tax on crypto capital gains above ₩2.5 million, which will then be placed on tax gains between ₩50 million to ₩300 million. A 25% tax will also be imposed on profits made by crypto service providers above ₩300 million.
In a report by the Korean Herald, People Power Party representative Cho Myung-hee said that it’s not right to impose taxes first while the legal definition of virtual currency is still ambiguous.
‘The intention is to ease the tax base to the level of financial investment income tax so that virtual currency investors do not suffer disadvantages,’ Cho stated.
With tightening regulations in the South Korean market, crypto exchanges are trying to expand their business to be less reliant on crypto transaction fees.
From the 4 approved crypto exchanges, Korbit has opened the first and only NFT market in the country. Meanwhile, Bithumb partnered with Bucket Studio, a commerce and distribution company to launch a multi-commerce platform for NFTs, crypto payment systems and metaverse services.
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