South Korean crypto exchanges have been given a short extension in their race to get anti-money laundering (AML) protocols in place – although the nation’s top regulator has promised to place the industry under “intense scrutiny” in the months ahead.
The nation’s first piece of crypto-specific legislation – aimed primarily at policing exchanges – promulgated on March 25, and exchanges were given until early July to ensure their AML protocols were in place, and ready to be audited by partner banks and financial regulators.
Trading platforms have also been handed a six-month grace period in which to obtain information security management system (ISMS) certification, demonstrate management structures to the regulatory Financial Services Commission (FSC) and obtain a real-name banking partner from the domestic commercial banking sector.
Thus far, only four exchanges have six-month banking deals in place, although all of these deals are due to expire before the grace period ends. As reported last week, 20 exchanges have obtained ISMS certification, with 10 more expected to follow suit before the deadline.
But so far no exchanges have struck banking deals beyond September, and few have obtained financial sector-level AML capabilities. As well as satisfying the regulator of their AML compliance, they will also need to pass risk assessment checks from banks – who will ultimately be given the power to determine the fate of the South Korean exchange sector. A growing number of banks have ruled out the possibility of working with exchanges, leaving trading platforms to fear for their futures.
However, per Yonhap and Seoul Shinmun, the FSC has now seen it fit to extend the AML adoption window until the end of 2021.
The regulator stated that the move would allow it to “minimize the damage to customers that may occur as exchanges that fail to report to the authorities by the end of September subsequently shut down.”
Regardless, the FSC is continuing to talk tough – it claimed it would begin its “intensive” scrutiny of exchanges in late September, and that probes, audits, and document reviews would likely take three months to complete in each case.
One company is already being audited as part of “due diligence” checks, Cryptonews.com reported last week, and the regulator is particularly keen to bring the exchanges that do not use real-name banking into line.
The FSC was quoted as stating:
“We will strengthen our monitoring of the accounts of virtual asset operators that do not use real-name authenticated deposit and withdrawal accounts.”
Industry experts and regulators alike are growing increasingly concerned by the risk of “planned bankruptcies” – from unscrupulous companies that may seek to declare insolvency on the eve of the deadlines in a bid to avoid having to repay their clients.