The Financial Services Commission (FSC) of South Korea has accused a number of local cryptocurrency exchanges of engaging in illicit activity. The Korea Herald reports, citing sources familiar with the matter.
The regulator will halt operations of 11 firms and report their violations to the prosecutor’s office and the police.
The exchanges are small- to mid-sized. They failed to meet FSC requirements on customer identification using named bank accounts and used “fraudulent collective accounts”.
It is not known which platforms were targeted. According to a source cited by the publication, these companies will have to shut down their business, as the FSC will not issue them a license to operate in the future.
On 30 January 2018, the South Korean authorities banned anonymous cryptocurrency trading within the country. Each trader must identify themselves using a bank account. Moreover, the account holder’s name on the exchange must match the name on the bank account.
Under the amendments to the Law on the provision and use of information about certain financial transactions, local bitcoin exchanges were required to register with the FSC by 24 September 2021. This includes ensuring compliance with know-your-customer (KYC) procedures in conjunction with partner banks.
In April 2021, FSC chairman Eun Sung-soo warned about the risk of all local crypto exchanges being shut down. Only the country’s largest platforms—Bithumb, Upbit, Korbit and Coinone—complied with the regulator’s requirements.
Mid-sized and small players use corporate bank accounts to receive user funds. Some companies have already announced they are closing their business.
In July, Darlbit announced the closure of its trading platform and ceased serving customers. The message said the reasons were regulator pressure and a cyberattack in which an undisclosed amount of funds was stolen.
The CPDAX platform also announced that it would cease operations on September 1. Users must withdraw assets by August 31.
Earlier in June, South Korean media reported that local crypto exchanges were considering filing a lawsuit against the government of the country. Industry participants say regulators are shirking their duties, shifting the responsibility onto banks.
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