S. Korean Regulator to Expel ‘Unfit’ Crypto Exchanges

The Financial Intelligence Unit (FIU) of South Korea has recently announced that it will be increasing its scrutiny over cryptocurrency exchanges in the country. The FIU plans to expel exchanges that it deems “unsuitable” from the local market, and it also intends to expand its screening procedures in order to prevent unfit exchanges from entering the national economy. The FIU aims to implement a preemptive trading suspension system for suspicious transactions on existing platforms, a move that has been recommended by the Financial Action Task Force and is being considered by 49 countries worldwide.

Since 2021, the FIU has been granting licenses to virtual asset service providers in South Korea. The three-year terms for these licenses are now expiring, and companies must apply for renewal. Before granting new permits, the FIU will carefully examine the exchanges’ anti-money laundering infrastructure, operational capacity, and consumer protection measures. Exchanges that fail to meet the necessary criteria will be denied registration. This thorough examination is being conducted in anticipation of the upcoming enactment of the country’s consumer protection law regarding virtual assets, which will take effect in July.

Rhee Yun-su, the commissioner of the FIU, has emphasized the need for institutional improvements in order to ensure the smooth operation of the cryptocurrency industry, particularly in light of the enactment of the virtual asset consumer protection act later in the year and the large-scale renewal of registrations. The Virtual Asset User Protection legislation, which integrates 19 crypto-related bills, was passed by the National Assembly on June 30, 2023. This legislation provides a unified framework for digital assets and imposes penalties for illicit trading activities such as market manipulation and the use of undisclosed information.

Recent reports have indicated that the FIU is investigating the crypto exchange OKX due to allegations of unregistered operation in South Korea. In response to increasing concerns around cryptocurrency-related crimes, the Financial Services Commission (FSC) of South Korea has stated that individuals involved in illegal profits exceeding $3.8 million could potentially face life imprisonment.

South Korea’s FIU is taking steps to strengthen regulation and oversight of cryptocurrency exchanges in the country. This includes expelling unsuitable exchanges, implementing a preemptive trading suspension system, and conducting thorough examinations of existing exchanges’ anti-money laundering measures and consumer protection practices. These efforts align with the upcoming enactment of the virtual asset consumer protection act and aim to promote the seamless operation of the cryptocurrency industry in South Korea.