"Comprehensive Guidelines for Virtual Currency Account Approval"... Difficulties in Establishing Internal Evaluation Criteria (Summary)

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

[Asia Economy Reporter Park Sun-mi] Banks engaged in transactions with the four major cryptocurrency exchanges?Bithumb, Upbit, Korbit, and Coinone?are struggling to accelerate the development of their own risk assessment measures. Although discussions are underway based on the "Anti-Money Laundering Risk Assessment Measures for Virtual Asset Service Providers (Cryptocurrency Exchanges)" prepared by the Korea Federation of Banks, the absence of laws and a governing authority related to cryptocurrencies, coupled with the overly comprehensive standard guidelines proposed by the Federation, are hindering progress. There is also significant concern that banks could bear full responsibility in the event of any cryptocurrency-related failures.

According to the financial sector on the 20th, banks, which must decide by September at the latest whether to approve real-name accounts for cryptocurrency exchanges 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.

The timing for banks to renegotiate contracts with existing cryptocurrency exchanges will come sequentially starting as early as June, but 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 standards.

The delay in establishing internal evaluation criteria by banks, which have taken on the role of "comprehensive verification" for cryptocurrency exchanges, stems from the government and financial authorities not recognizing cryptocurrencies as financial assets, causing unease about transactions with exchanges. Additionally, the Federation's standard guidelines are so broad that banks feel burdened by the prospect of assuming full responsibility through their own evaluation criteria.

Last month, the Federation convened a closed meeting with department heads from 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 concerning 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.

What are the contents of the 'Anti-Money Laundering Risk Assessment Measures for Cryptocurrency Exchanges'?

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, these assessments cover transaction volumes from high-risk nationalities, virtual asset credit ratings, the number of customers in high-risk industries, occurrences of negative incidents within virtual asset service providers, internal control systems, and independent audit frameworks.

Once mandatory requirement inspections and risk assessments are completed, banks assign a risk rating to the cryptocurrency exchange?high, medium, or low?and make a 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 mass shutdown will be inevitable.

Industry insiders agree that even if banks hurriedly establish their own evaluation criteria for cryptocurrency exchanges, only a few will pass due to stringent screening standards and the responsibility burden banks must bear. A bank currently transacting with cryptocurrency exchanges explained, "We are developing our own standards by strengthening the risk assessment section beyond what the Federation has proposed."

K-Bank, Shinhan Bank, NH Nonghyup Bank, and others currently dealing with cryptocurrency exchanges plan to soon establish their own evaluation criteria and decide on contract renewals through screening, but they are taking a cautious stance on adding new trading partners. Banks that have not engaged with cryptocurrency exchanges remain negative about starting new transactions due to the ambiguous regulatory framework surrounding cryptocurrencies.

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 existing cryptocurrency exchanges 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.