Starting from September 24, South Korean crypto exchanges will have to set aside at least 3 billion won ($2.3 million) in reserves as part of the new regulatory framework for the crypto industry. The reserve requirement is aimed at protecting investors from potential losses or frauds in case of bankruptcy or closure of the exchanges.
According to a report by The Korea Herald , the Financial Services Commission (FSC), the country’s financial regulator, announced the new rule on Wednesday, along with other guidelines for crypto exchanges to comply with the revised Act on Reporting and Use of Certain Financial Transaction Information. The act, which was passed in March 2020, requires crypto exchanges to register with the FSC and obtain an information security management system (ISMS) certification from the Korea Internet and Security Agency (KISA) by September 24.
The FSC said that the reserve requirement is based on the minimum capital requirement for foreign exchange businesses, which is also 3 billion won. The FSC added that the reserve amount may increase depending on the size and scale of the crypto exchanges. The reserve funds must be deposited in a separate bank account and reported to the FSC every quarter.
The FSC also said that crypto exchanges must submit a business report to the FSC by September 14, which includes information such as their business plan, governance structure, anti-money laundering (AML) measures, investor protection policies, and risk management system. The FSC will review the business report and decide whether to grant or deny the registration of the crypto exchanges by September 24.
The FSC warned that any crypto exchange that fails to meet the registration and reserve requirements by the deadline will face a suspension of its operations and a fine of up to 100 million won ($73,000). The FSC also urged investors to withdraw their funds from unregistered or non-compliant crypto exchanges as soon as possible.
The new regulatory framework for the crypto industry in South Korea is expected to have a significant impact on the market, as many crypto exchanges may struggle to meet the requirements or exit the market altogether. According to a report by Yonhap News Agency , only four crypto exchanges out of over 60 in the country have obtained the ISMS certification so far: Upbit, Bithumb, Coinone, and Korbit. The report also said that only 20 crypto exchanges have applied for the ISMS certification as of July 2.
The FSC said that it will continue to monitor and supervise the crypto industry to prevent illegal activities, such as money laundering, tax evasion, or fraud, and to protect investors’ rights and interests. The FSC also said that it will cooperate with other relevant authorities and agencies, such as the Financial Intelligence Unit (FIU), the National Tax Service (NTS), and the police, to enforce the new rules and regulations.