South Korea Strengthens the Supervision of Crypto Exchanges,Nearly Two-thirds of Exchanges Forced to Close with $2.6B in Losses

The South Korean Financial Services Commission (FSC) has begun to tighten the supervision of local and overseas cryptocurrency trading platforms in South Korea, resetting a new deadline on September 24, according to Financial Times.

It is reported that this regulation will terminate nearly two-thirds of unapproved South Korea’s cryptocurrency exchanges for legal transactions. Approximately 40 of South Korea’s 60 cryptocurrency service providers may be shut down, which will cause traders to up to $2.6 billion in losses.

South Korea’s financial regulator issued an official document on September 6 stating that VASP needs to register its business with the government. 

The definition of VASP covers crypto exchanges, wallet providers, financial service providers in connection with the issue, offer and sale of virtual assets, and other possible business models.

The official announcement wrote that:

"For VASPs that are planning to operate a virtual asset trading platform but are not planning to offer KRW-based or other fiat currency-based exchange services, the authorities advised them to terminate their fiat currency-based exchange services without delay by the September 24 registration deadline. When filing their registration report, these VASPs should submit a document confirming the termination of their fiat currency-based exchange services."

The regulatory agency recommends that those VASPs that cannot meet the requirements and terminate operations should issue a business termination notice one week in advance (September 17) to minimize damages to users end.

Kim Hyoung-Joong, a professor and head of cryptocurrency research from Korea University, said that the supervision is extremely likely to shut down 42 Korean won-denominated cryptocurrencies called "Kimchi Coins."

At present, South Korea's crypto trading platforms are mainly concentrated in the four major exchanges, Upbit, Bithumb, Korbit and Coinone, which cover more than 90% of the total digital asset trading volume. Therefore, smaller exchanges may be closed, causing some investors' encrypted assets to be frozen in the exchange and suffer huge losses.

"Huge investor losses are expected with trading suspended and assets frozen at many small exchanges as customer protection will not likely be the priority of those exchanges facing an imminent closure," The president of Korea Finance Consumer Federation Cho Yeon-haeng said.