South Korea to Shut Down Unfit Cryptocurrency Exchanges in 2024
The Financial Intelligence Unit of South Korea recently announced amending regulatory requirements for cryptocurrency trading platforms operating in the country. However, the regulators have plans to tighten the regulations around the crypto services providers rather than granting any relief.
FIU officials issued a notification about the scrutiny of cryptocurrency exchanges operating in the country that are deemed unsuitable for offering services to the local markets starting from the ongoing year.
Expansion of the Screening Process
A notification issued on 12th February 2024 in The Korean Times, FIU noted that the firm is working on expanding the scope of the screening process taking place in the cryptocurrency markets. It is to prevent unfit trading platforms from participating in national economic matters.
Additionally, the regulators are also working on issuing an anticipatory suspension for trading services that involve suspicious transactions within the bounds of South Korea.
This notification will freeze transactions before the investigation starts. Such cases will be processed in light of the regulatory requirements of the Financial Action Task Force. FATF has recommended that 49 nations have to consider these latest changes. FIU issued virtual asset service provider (VASP) licenses to various firms in the region since 2021. For 2024, the legal terms of these licenses have expired.
On this account, various former VASPs applied for a renewal but FIU is set to check for Anti-Money Laundering (AML) measures.
FIU to Ensure New Policy Rules Before VASP License Renewals
In addition to AML requirements, FIU is also set to check the firms for operational capacity and consumer protection of the trading platform. Therefore, any companies that have failed to comply with these regulations will not receive a VASP renewal.
Additionally, FIU has also invoked the consumer protection law aimed at virtual currencies that are set to become effective in July. On this account, authorities are conducting research on various VASPs.
FIU commissioner Rhee Yun-Su has noted that the preparation of the enactment Consumer Protection Act for virtual currencies is going to go live in the 2nd half of the ongoing year. Large-scale renewal registrations are also going to go live for the same duration. Meanwhile, KoFIU will implement institutional improvements to ensure the seamless operation of the crypto sector.
Virtual Asset User Protection law was approved by the National Assembly on 30th July 2023. This legislature included 19 crypto-related bills. It provided a unified bill to describe digital assets and implemented a penalty on various users for conducting illegal trading activities such as lack of information disclosure.
The legislator will also grant penalties for market manipulation and other unethical investing attempts within the sector. Local media outlets reported on 7th February 2024 that FIU has opened an investigation into an OKX exchange based on its unregistered status.
Japan and South Korea to Implement Strict Rules for Crypto Transactions
Another front where Japan and South Korea are set to tighten regulations around cryptocurrencies is cryptocurrency transactions. The Financial Services Agency (FSA) of Japan recently introduced various policies to restrict cryptocurrency investors from making illegal transactions via crypto trading platforms. This policy can have a big impact on the peer-to-peer (P2P) transaction industry.
Regulators have talked about halting crypto-asset transfers in case the name of the sender does not match with the main account name. However, this policy is only a recommendation and does not hold exchanges accountable for implementing this principle. On the other hand, analysts believe that this could entice banking firms to direct attention towards the P2P sector.
The Financial Intelligence Unit (FIU) of South Korea has also decided to tighten regulations around cryptocurrency transactions. The agency intends to introduce a preemptive trading suspension structure to halt any suspicious activities taking place within its jurisdiction. Based on this policy, FIU will be able to freeze transactions during the pre-investigation phase.
Additionally, FIU is also working on expanding its crypto team in 2024 by providing the necessary education and training to introduce a system that will track and analyze virtual asset transaction details and alternative transaction channels.
