[Chaos in Cryptocurrency] Massive Exchange Restructuring Expected in the Second Half of This Year

Banks Take on Responsibility for Exchange Comprehensive Certification
Banking Association to Distribute 'Reference Materials' Within This Month
Strict Screening Expected for Real-Name Account Issuance

[Asia Economy Reporter Park Sun-mi]"From a bank's perspective, transactions with cryptocurrency exchanges carry more risks than benefits. This is because issues can escalate if linked to money laundering. This is why many banks are reluctant to engage with cryptocurrency exchanges." (Senior executive at Bank A)

Many domestic cryptocurrency exchanges are increasingly likely to shut down by the end of September, when the grace period for the amendment to the Act on Reporting and Using Specified Financial Transaction Information (the Specified Financial Transactions Act, or Specified Act) expires. This is because the government and financial authorities have failed to establish laws and regulations for the proliferating exchanges, and the banking sector, which has taken on the responsibility for comprehensive certification of exchanges, is announcing stringent screening for issuing real-name accounts. There is a conservative atmosphere as there are concerns that if problems arise at exchanges, similar to the private equity fund incident, banks may be held liable for investment losses, and that it could be linked to money laundering issues.

According to the financial sector on the 20th, the Korea Federation of Banks plans to distribute reference materials containing basic processes and evaluation factors for banks to consider when dealing with cryptocurrency exchanges within this month. The external consulting service for preparing the reference materials is in its final stages, aiming for distribution within this month.

Banks that decide to transact with cryptocurrency exchanges will be able to create and apply detailed internal guidelines tailored to their situations based on the reference materials distributed by the Korea Federation of Banks. Banks had requested the financial authorities to create guidelines necessary for transactions with cryptocurrency exchanges reflecting the amended Specified Act, which took effect on the 25th of last month, but the authorities refused, stating that each bank must establish its own standards individually.

The amended Specified Act imposes anti-money laundering obligations on cryptocurrency exchanges and stipulates that they must obtain real-name verified deposit and withdrawal accounts from banks and complete the reporting procedures by September 24, when the grace period ends, to operate legally. It essentially entrusts the banking sector with the comprehensive evaluation of the risk, safety, and business models of cryptocurrency exchanges to decide whether to issue real-name deposit and withdrawal accounts.

The problem lies in banks showing reluctance to partner with cryptocurrency exchanges. Currently, only four major exchanges?Bithumb, Upbit, Coinone, and Korbit?have real-name accounts with banks such as NH Nonghyup, Shinhan, and K Bank. More than 100 small and medium exchanges are contacting banks to obtain real-name deposit and withdrawal accounts by the end of September but have yet to achieve significant results.

Banks Announce Stringent Screening for Cryptocurrency Exchange Transactions... Conservative and Passive Responses

Commercial banks like KB Kookmin and Woori Bank, which do not currently transact with cryptocurrency exchanges, are hesitant to enter the market due to the risk burden associated with cryptocurrency transactions. Even banks already dealing with major exchanges express concerns about expanding their partnerships. Banks intend to apply stricter internal screening criteria to the major cryptocurrency exchanges they already work with, evaluating them more conservatively.

Commercial banks are reluctant to issue deposit and withdrawal accounts to cryptocurrency exchanges because they are heavily exposed to liability in case of incidents and money laundering risks. Moreover, as cryptocurrency investments have overheated recently, the government has heightened vigilance by announcing a special government-wide crackdown policy to prevent illegal activities such as money laundering and fraud using cryptocurrencies.

A bank official said, "If a financial accident occurs after issuing deposit and withdrawal accounts to cryptocurrency exchanges, it directly impacts the bank's compliance management," adding, "Since management could be implicated one after another, banks generally perceive it as better not to get involved at all."

Another bank official explained, "Several cryptocurrency exchanges have consulted at branches for real-name account issuance, but none have been approved yet," and added, "Due to internal control risks, even banks that have dealt with cryptocurrency exchanges must approach expanding their partners conservatively."

This content was produced with the assistance of AI translation services.