Stricter Cryptocurrency Exchange Reviews... Inevitable to Pass Through the Needle's Eye Amid 'Nunchi Bogi'

Banks Struggling to Establish Internal Evaluation Criteria
"Difficult to Create Internal Standards Based on Standard Guidelines," Some Say

[Asia Economy Reporter Park Sun-mi] The four major cryptocurrency exchanges?Bithumb, Upbit, Korbit, and Coinone?and the banks trading with them are struggling to speed up the preparation of their own risk assessment measures. Although discussions are underway on applying the “Anti-Money Laundering Risk Assessment Measures for Virtual Asset Service Providers (Cryptocurrency Exchanges)” prepared by the Korea Federation of Banks, there is no cryptocurrency-related law or governing agency, and the standard guidelines proposed by the Federation are too broad. There is also considerable concern that banks could end up bearing full responsibility in the event of any cryptocurrency-related insolvency incidents.

According to the financial sector on the 20th, banks that must decide whether to approve real-name accounts for cryptocurrency exchanges by September at the latest, under the amended Act on Reporting and Using Specified Financial Transaction Information (Special Financial Transactions Act) enforced since March, are preparing their own evaluation criteria based on the risk assessment measures for anti-money laundering at cryptocurrency exchanges proposed by the Federation of Banks. Although the timing for banks to renegotiate contracts with existing cryptocurrency exchanges will come sequentially from as early as June, no bank has yet completed its own evaluation criteria. Only a few banks have stated that they are in the final stages of preparing their own evaluation criteria.

The reason why banks, which have taken on the role of “comprehensive verification” for cryptocurrency exchanges, are taking time to prepare their own evaluation criteria is that the government and financial authorities do not recognize cryptocurrencies as financial assets, causing unease about transactions with exchanges. Additionally, the Federation’s standard guidelines are so comprehensive that banks feel burdened by the prospect of bearing full responsibility through their own evaluation criteria.

Last month, the Federation convened a closed meeting with heads of relevant departments in the banking sector to discuss the risk assessment measures (standard guidelines) that could assist in approving real-name accounts for cryptocurrency exchanges. According to the standard guidelines, banks must directly inspect “mandatory requirements,” which include 10 items related to legal compliance and 6 items related to business continuity. These include factors such as any history of fraud or embezzlement by cryptocurrency exchange executives and employees, whether dark coins are handled, and any history of external hacking incidents.

Additionally, banks must conduct quantitative evaluations of 16 “inherent risks” that could be exploited for money laundering and 87 “control risks” related to the adequacy of internal controls. For example, checks include transaction volumes of customers from high-risk nationalities, virtual asset credit ratings, the number of customers in high-risk industries, occurrence of negative incidents within virtual asset service providers, internal control systems, and independent audit systems.

Once the mandatory requirements inspection and risk assessment are completed, banks will assign a risk rating of high, medium, or low to the cryptocurrency exchange and make the final decision on whether to proceed with transactions. If the hundreds of existing cryptocurrency exchanges fail to secure real-name accounts through banks by September at the latest, a collective shutdown will be inevitable.

Within the industry, there is a consensus that even if banks hurriedly create their own evaluation criteria for cryptocurrency exchanges, only a few will pass due to the strict screening standards and the burden of responsibility banks will bear. A bank official said, “We are experiencing considerable difficulties in creating internal evaluation measures based on the standard guidelines proposed by the Federation. Even if our own evaluation measures are ready before contracts with the cryptocurrency exchanges we trade with expire, it is a significant burden for banks to enforce and take responsibility for them.”

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