Authorities in South Korea are persevering with to suggest and enact measures aimed toward sustaining strict oversight over the nation’s crypto trade market. These come amid a major uptick in cryptocurrency buying and selling quantity, particularly for altcoins.

In Could, South Korea’s Monetary Providers Fee (FSC) announced that the federal government is planning to implement stricter regulatory insurance policies on cryptocurrencies normally. This transfer comes as digital asset service suppliers (VASPs) have been given till September to register with the suitable state authorities.

Crypto exchanges in South Korea had been already beneath stress even earlier than this new set of stricter regulatory insurance policies. The requirement for real-name buying and selling accounts has seen smaller- and medium-sized exchanges scramble to safe licenses from industrial banks to no avail, not less than as of the time of writing.

Just lately, experiences have emerged of one other coverage transfer from South Korean authorities that might have far-reaching ramifications, even for the “Large 4” crypto exchanges within the nation — Bithumb, Coinone, Korbit and Upbit.

FSC shines highlight on cross buying and selling apply

As beforehand reported by Cointelegraph, the FSC is planning to ban cross trading on crypto exchanges within the nation as a part of a raft of stricter regulatory measures for buying and selling platforms. Cross buying and selling is a technique utilized by buying and selling desks to offset purchase and promote orders for a similar asset with out recording the transactions on their order e book.

Cross buying and selling, whereas unlawful in lots of international locations, is in some methods a crucial apply for crypto exchanges in South Korea. For one, crypto buying and selling within the nation is denominated in Korean received, however charges are collected in cryptocurrencies.

Cross buying and selling presents an answer for South Korean crypto exchanges, permitting them to transform buying and selling charges to Korean received by performing the conversion proper on their platform. With the FSC banning the apply, these exchanges might now have a tough time realizing the numerous income stream that comes from amassing buying and selling charges.

Certainly, the preliminary responses from some business commentators to the deliberate transfer are {that a} cross buying and selling ban would function a income chokepoint for South Korean crypto exchanges. The FSC’s ban, if handed, would imply necessary zero-commission buying and selling by platforms within the nation.

South Korean crypto exchanges cost 0.05% on common as buying and selling charges. Because of this within the first quarter of 2021, Upbit raked in virtually $9 million in charges every day from a 24-hour turnover of about $17.9 billion. Certainly, the sizable surge in South Korea’s crypto buying and selling quantity in 2021 has meant larger charge income for platforms.

As early as February, Bitcoin (BTC) turnover for each Bithumb and Upbit was already upward of 11 occasions greater than the figures recorded for a similar interval in 2020. Earlier in June, Cointelegraph reported that checking account flows for exchanges within the nation had been up 40% over the past year.

The income development for South Korean crypto exchanges has even had a trickle-down impact on banking companions and buyers. Upbit’s main banker, Okay Financial institution, loved a sharp turnaround in its financial performance and is reportedly concentrating on 2022 for an preliminary public providing.

Whereas Bitcoin fever characterised the early crypto buying and selling mania of 2021, the pattern pivoted to altcoins because the yr progressed. With token costs surging parabolically up till Could, South Korean crypto merchants seemed to favor smaller-cap altcoins.

Such was the extent of the altcoin buying and selling mania that the Korea Federation of Banks warned of the trend’s potential risks. On the time, the order books of even the Large 4 confirmed BTC buying and selling exercise accounting for lower than 5% of their 24-hour buying and selling exercise, which was considerably decrease than the worldwide common for Bitcoin on different platforms.

None of our enterprise, says the FSC

As is usually the case with regulatory measures in South Korea, the smaller exchanges may face considerably larger working difficulties if the FSC’s cross buying and selling ban turns into regulation. Assuming that platforms shall be loath to forgo the income from buying and selling charges, South Korea’s cryptocurrency exchanges must provide you with an alternate.

Essentially the most possible various could be to create a separate buying and selling desk devoted to changing crypto buying and selling charges to Korean received. Nonetheless, any new crypto trading-related enterprise in South Korea have to be registered with FSC’s Monetary Intelligence Unit and cling to strict Anti-Cash Laundering (AML) legal guidelines.

This registration comes with a major price burden that may be an excessive amount of for the smaller platforms nonetheless struggling to fulfill the September licensing deadline. One other attainable possibility for exchanges could be to associate with mortgage suppliers open to accepting crypto as collateral.

Associated: South Koreans flock to crypto amid a heavy-handed regulation approach

Whatever the route chosen, exchanges can in poor health afford to keep away from arising with an answer to the issue if cross buying and selling is banned by the FSC. Other than the apparent income implications, crypto buying and selling charges additionally entice withholding tax levies.

For the FSC, this explicit downside is one the exchanges must remedy by themselves. Supporting its choice to pursue a cross buying and selling ban, the fee acknowledged that permitting trade operators to commerce towards their prospects constitutes a battle of curiosity with important value manipulation dangers.

As to the problem of discovering various technique of repatriating buying and selling charges to Korean received, the FSC stated: “Whether or not you wish to change cryptocurrency to a different asset (apart from received) or to maintain cryptocurrency, you want to discover a answer your self.”

Is that this it for smaller exchanges?

Responding to Cointelegraph’s request for feedback, a foreign-media relations spokesperson for the FSC acknowledged:

“Because the authorities are presently engaged on amendments to the related regulation, it will be inappropriate to remark in your questions proper now with particular measures nonetheless being drawn up. When particular measures are prepared for announcement, we are going to put them up on our web site.”

For Lee Chul-ie, CEO of South Korean cryptocurrency trade platform Foblgate, the proposed cross buying and selling ban is just one other blow for smaller exchanges within the nation. Chatting with the Monetary Instances, Chul-ie remarked: “We face an existential disaster. We wish to legitimise our enterprise however banks are reluctant to supply us real-name accounts.”

In line with the trade operator, further issues like cross buying and selling bans may push smaller platforms exterior the nation or to hunt “gray areas” to avoid stringent regulatory measures.

Nonetheless, Jeff Kang, South Korea nation supervisor at blockchain safety outfit CoolBitX, is of the opinion that some smaller exchanges will be capable of handle the scenario. In a dialog with Cointelegraph, Kang opined:

“Whereas it seems that elevated oversight from the South Korea FSC may be daunting information for the native cryptocurrency business, the scenario just isn’t as dire because it appears. The Korean authorities’s stance on cryptocurrencies is to not completely stamp out its use, however to account for client safety and to eradicate monetary terrorism and cash laundering.”

In line with Kang, the FSC’s purpose is to not pressure exchanges in a foreign country however to make sure sturdy AML compliance protocols, including: “In mild of this, cryptocurrency exchanges must sign their dedicated stance to double down on compliance efforts as a way to obtain licenses by the September deadline.”

Kang additionally stated that as many as six different exchanges are near receiving real-name buying and selling account licenses, to carry the full quantity to 10. Nonetheless, even when that occurs, there’ll nonetheless be over 50 exchanges in South Korea with unsure regulatory standing that may in all probability be pressured to close down their operations come the September deadline.

For banks, their reticence in coping with exchanges comes from the truth that monetary establishments in South Korea could be held responsible for the misdeeds of their cryptocurrency trade companions.

This example may be due for a change, with discussions underway between banks and the FSC to restrict the legal responsibility of business banks within the occasion of any misdeeds dedicated by their crypto trade purchasers. These discussions are additionally half of a bigger agenda that may see banks classify crypto exchanges as high-risk clients.