Korean Government May Face Suits From Crypto Exchanges as Banning Fear Looms

News / 28.06.2021

The revised Act on Reporting and Use of Certain Financial Transaction Information could cause a shutdown of multiple cryptocurrency exchanges.

The exchanges could sue the South Korean government under these circumstances. Each exchange must submit a document by Sep. 24 showing that a bank has given a real-name bank account according to the act.

Cryptocurrency exchanges in South Korea, considered to have many coins on their trading platforms, are at risk of being denied access to personal bank accounts, a report showed Monday.

According to a document drawn up in April by the Korea Federation of Banks, a body that represents 22 full members, such as major commercial banks, state-run lenders, and 36 associate members, a risk assessment guideline used by commercial lenders classifies exchanges with “a high number and frequency of virtual money transactions” as high risk.

The report released by Rep. Yoon Doo-Hyun of the main opposition People Power Party showed that the guideline was possibly targeted in the process of real-name account issuance.

Banks Distancing Themselves from Cryptocurrency Exchanges

The document comes as commercial banks are reluctant to issue real-name accounts for local cryptocurrency exchanges’ virtual asset customers.

Domestic banks are reluctant to extend their business partnerships with cryptocurrency exchanges to protect themselves from the possibility of being involved in money laundering.

A recent amendment to the Act on Reporting and Using Specified Financial Transaction Information calls for the exchanges to find banks willing to partner with them to issue the accounts.

The guideline also requires banks to observe any fraud or records of crimes by the exchanges’ operators and leadership to assess their soundness.

Risk of being Shut Down

Banks would be responsible for screening the exchanges to assess risks and transparency. For example, K Bank, NH Bank, and Shinhan Bank are conducting risk assessments with the four major exchanges of UPbit, Bithumb, Coinone, and Korbit.

The same assessment is not in progress in the other exchanges, which will be placed at risk of being shut down if they fail to find a partner by the deadline.

Several exchanges are currently considering pressing a constitutional appeal against the government and the financial authorities. They believe the government and the authorities responsible for cryptocurrency and exchange verification are shirking their responsibilities by passing the buck to banks.

One of the exchanges said banks are refusing to initiate their cryptocurrency exchange verification processes without clear reasons. Adding that, the Financial Services Commission needs to step in right away as several exchanges are failing to get a chance to prove themselves.

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.