"If This Continues, Forced Closures"…Coin Exchanges Plead to Lee Bok-hyun [Whisper]

Losses Accumulate as New Real-Name Accounts Become Impossible
Under Financial Supervisory Service Oversight Due to Law Enforcement
Concerns Grow Over Closure of Small Exchanges

Lee Bok-hyun, Governor of the Financial Supervisory Service, attended the "Virtual Asset Business Operator CEO Meeting" at Front1 in Seoul on the 7th and took a commemorative photo after discussing with the virtual asset exchange industry.

"Currently, the virtual asset exchange industry is collapsing due to difficulties in obtaining real-name accounts."

"From May, when the Financial Supervisory Service (FSS) begins pre-inspections, closures may become a reality."

The atmosphere at the 'Meeting between FSS Governor Lee Bok-hyun and Virtual Asset Business Operators (CEO)' held on the 7th was tense. Both FSS officials and virtual asset industry CEOs described the on-site atmosphere as "heated."

This meeting was held to share the inspection and supervision guidelines presented by the FSS ahead of the enforcement of the "Virtual Asset User Protection Act" starting July 19. The FSS demanded that virtual asset exchanges fully establish their organizations, systems, and internal control frameworks before the law takes effect.

The FSS intended to receive questions and exchange opinions on related matters, but the discussion took a very different turn. The closed-door meeting lasted over an hour, with most of the conversation focusing on banks' issuance of real-name verified deposit and withdrawal accounts (real-name accounts) for virtual asset exchanges. The CEOs complained to the FSS Governor about the real-name account issuance issue, which falls under the jurisdiction of the Financial Services Commission (FSC).

In conclusion, it was explained that, aside from the five existing virtual asset exchanges, it is difficult to obtain real-name accounts, causing new operators to face management difficulties. In this context, there were concerns that if the FSS conducts pre-inspections before the enforcement of the Virtual Asset User Protection Act, a wave of closures among virtual asset exchanges is likely.

Virtual asset exchanges must obtain real-name accounts from banks to operate the KRW market (trading between Korean won and coins). Following the amendment of the Act on Reporting and Using Specified Financial Transaction Information (the Specified Financial Transaction Act, or Spec-Fin Act) in September 2021, the Financial Intelligence Unit (FIU) of the FSC began accepting registrations from virtual asset service providers (VASPs). At that time, the screening process was not stringent. However, as various issues arose, the FSC raised the standards for real-name account issuance, and currently, only five KRW market exchanges exist: Upbit, Bithumb, Coinone, Korbit, and Gopax.

A CEO who attended the meeting said, "In 2021, the FSC stated regarding the real-name account issuance criteria that 'banks should act autonomously, but the responsibility for money laundering also lies with the banks,'" adding, "This was an indirect pressure essentially telling banks not to issue real-name accounts."

Except for the five major exchanges, it is known that most exchanges cannot attract users and are operating at a loss. Although real-name account issuance is under the FSS's jurisdiction, the frustrated virtual asset industry expressed their difficulties about the current situation to the FSS Governor.

This stance is also reflected in the Spec-Fin Act Enforcement Decree, which was announced for legislative notice earlier this month. According to the Spec-Fin Act, financial institutions such as banks must verify the following before opening accounts for virtual asset service providers: △ segregation and custody of customer deposits △ acquisition of Information Security Management System (ISMS) certification △ completion of virtual asset service provider registration △ anti-money laundering risk assessment △ securing reserves (3 billion KRW) to obtain real-name accounts.

With the law's enforcement, the virtual asset exchange industry is expected to naturally undergo restructuring centered on large companies. A CEO of a major exchange who attended the meeting expressed concerns about the aftermath of this restructuring. He pointed out, "Most virtual asset exchanges, unlike banks, have not established systems such as internal controls and compliance," adding, "Starting from May, when pre-inspections begin, many will feel difficulties in organizational management and costs and decide to close, with the protection of customer deposited assets being the biggest issue."

He continued, "Under current law, virtual assets are not subject to the Trust Act. If a virtual asset exchange closes, creditors can seize assets, and customer deposits may also be subject to seizure."

According to the Spec-Fin Act, even if a virtual asset exchange closes, it must return customer deposited assets within five years. There are concerns whether small-scale virtual asset exchanges can properly comply with this. It seems necessary not only to leave the obligation to protect customer deposited assets solely to virtual asset exchanges but also for authorities to prepare measures.

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