The watchdog asked them to get registered with local authorities and obtain the necessary approvals.
South Korea’s financial sector regulator Financial Services Commission (FSC), is planning to stop domestic access to foreign crypto exchanges that are not registered in the country. These trading platforms have been asked to obtain proper licenses by September 24.
Failing to do so will instantly result in the blocking of their websites. Also, users who deal with such unlicensed exchanges may face penalties.
Foreign Exchanges on Watchdog’s Radar
The financial sector watchdog is believed to have received a request from its intelligence unit that the local websites of 16 foreign crypto exchanges should be blocked. A similar advisory has been issued to the country’s other law enforcement agencies, media reports said.
FSC could initiate probes into the 16 foreign crypto exchanges that operate in the country without a due operational permit and report their violations to the nations where they are registered, the coverage said.
The 16 foreign crypto exchanges on the list are KuCoin, MEXC, Phemex, ZB.com, Bitglobal, CoinW, XT.com, Bitrue, CoinEX, AAX, ZoomEX, BTCEX, BTCC, Poloniex, DigiFinex, and Pionex.
Requirements and Punishments
One of the requirements for foreign cryptocurrency platforms to operate in South Korea is to obtain a certification from the Korean Information Security Management System (ISMS). The certification calls for stringent maintenance of data related to anti-money laundering and KYC provisions.
They are also required to follow the guidelines of the Specific Financial Information Act to operate in the South Korean market. The Act prescribes up to five years of prison or 50 million won ($43,500) in fines for failing to operate without a due permit. A further ban on the fresh registration of these firms can also be imposed.
In a crackdown last year, nearly 60 crypto exchanges were forced to shut down for failing to meet these requirements. As of now, 35 such companies are said to have licenses to operate in South Korea. These include the top five exchanges – Bithumb, Coinone, Upbit, Gopax, and Korbit – that account for over 99% of the local market.
Korea’s Crypto-Friendly Image
Early this month, CryptoCom secured a Virtual Asset Service Provider license and registration under Electronic Financial Transaction Act. These approvals became necessary for the Singapore-based crypto exchange after it acquired payment service provider and digital asset firm PnLink Co. and OK-BIT Co., respectively.
In May, President Yoon Suk-yeol, believed to be crypto-friendly, took charge of the office. His government has proposed to defer the planned crypto taxation that was to come into effect from January 2023 to January 2025.
He has said crypto tax should kick in only after there is a proper market infrastructure for digital assets trade. One of the components of this infrastructure is crypto regulation, believed to be in the works and may be released next year.
Tough Time for Regulators
However, regulators are having a difficult time coping with a market where crypto trades are legal, but there are no specific laws to regulate it.
In the latest trouble, FSC is reported to be investigating illegal overseas remittances tied to what is called Kimchi Premium, a trade to benefit from the difference in prices in crypto assets between domestic and foreign cryptocurrency exchanges.
These illegal transactions were made between January 2021 and June 2022 and are believed to be to the tune of $6.5 billion.