South Korea Ramps Up Crypto Exchange Scrutiny: Report

The Financial Intelligence Unit of South Korea has announced plans to boost scrutiny over crypto exchanges, enhancing supervision in the thronging market and signalling an affirmative stance toward customer protection in the sphere of digital assets.

In December 2023, the Financial Services Commission introduced the Virtual Asset User Protection Act, after which the Financial Intelligence Unit (FIU) announced its plan to tighten regulation. The Introduce proposal is expected to be in full operation from July 19, 2024. It generally aims to complement the overall objective of enhancing transparency and safety within the sector of virtual asset services.

Among other things, the measures include tough custodian requirements for Virtual Asset Service Providers (VASPs) and rules that would compel them to hold a customer’s assets in cold wallets, apart from the moves against abnormal transactions together with fines for unfair practices.

KoFIU Targets Unfit Crypto Exchanges

The Korea Times recently reported that authorities will squeeze out crypto exchanges that fail to meet high standards. Korea’s Financial Intelligence Unit (KoFIU) emphasized its determination to enhance monitoring and supervisory functions over such platforms for the protection of investors and the maintenance of market integrity.

In addition, KoFIU said it would expand the scope of screening targets for the new entrants in the cryptocurrency market so it can proactively block unfit virtual business operators from entering. This also led to South Korea moving to adopt preemptive trading suspension in a bid to realize international best practices in the prevention of suspicious transactions as recommended by the Financial Action Task Force.

The annual work plan of the KoFIU, reported on Monday, reflects accordant cooperation with the industry stakeholders and policy advisory committees. KoFIU has been dealing with the onboarding of a number of coin exchanges officially registered in South Korea since the fall of 2021.

The KoFIU plans to conduct a comprehensive examination during the renewal registrations of crypto exchange recognition in the second half of the year. This will verify whether we have adhered to the strengthened anti-money laundering standards or not.

Commissioner Rhee Yun-Su stated that strict inspections are necessary for the smooth enforcement of South Korea’s first consumer protection law for virtual assets, expected to come into effect in July. He said:

In preparation for the enactment of the virtual asset consumer protection act from the latter half of this year and the large-scale renewal registrations, KoFIU will agilely push forward with the necessary institutional improvements to ensure the seamless operation of the cryptocurrency industry.

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