Regulatory measures from the South Korean Financial Services Commission (FSC) will entail even more destructive consequences than cryptanalysts expected. Losses for the industry could amount to more than 2.6 billion, and the number of local crypto exchanges will be reduced by 70%.
The main reason for concern for most South Korean investors for several months now has been the threat looming over them in the form of a law on the compulsory registration of local and foreign exchanges that trade crypto assets. Losses from 42 kimchi coins alone, traded exclusively on local trading floors, could exceed 3 trillion won, the equivalent of 2.6 billion. According to the Financial Times, kimchi tokens are traded on 90% of Korean crypto exchanges.
Another challenge for all exchanges seeking to comply with the new regulatory requirements will be that the anti-money laundering and KYC verification procedures now include closer cooperation of the platforms with banks. Since they must register with a bank, most of these financial structures are not eager to cooperate with cryptocurrency companies, artificially stretching the registration process, up to the deadline.
While exchange executives are desperate to meet the September 23 deadline this year, the financial regulator advised them to inform clients of a possible closure by September 17. This, according to FSC representatives, will allow investors to avoid unnecessary spending and withdraw funds from their exchange accounts on time.
September 24 may be a critical date for the South Korean cryptocurrency market, affecting the entire industry in the future. Since at the moment 40 out of 60 local trading platforms still have not been registered. Therefore, after the September 23 deadline expires, they will have to close on their own. Or receive fines, and then criminal prosecution, in case of non-fulfillment of obligations and unregistered trade in crypto assets.
Of course, if the crypto exchanges follow the advice of the regulator and announce the decision on the forced closure, this will create an equal collapse in the market as a result of the attempts of millions of investors to have time to withdraw money promptly, and the regulator is well aware of this. In addition, the reserves of small cryptocurrency exchanges do not provide for the option of urgently withdrawing most of the clients' assets. Executives at some South Korean stock exchanges are wondering if regulators themselves will be able to deal with the potential spillover effects of an "investor flight."
Binance has already halted winning and pairing payment options to comply with regulatory requirements, and Bitfront, a subsidiary of tech giant LINE, has announced it is ending operations in South Korea in favor of the new rules.
The main fear of local investors and representatives of cryptocurrency companies has become a possible monopoly on the market because so far everything is leading to exactly this outcome. Only the four largest exchanges have managed to comply with the new legislation Upbit, Coinone, Bithumb, and Korbit. If their dominance continues, then these companies are unlikely to allow new players to enter the market. And the regulator does not mind helping them in this.
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