The head of South Korea’s financial regulatory agency has said that all crypto exchanges operating in the country could be shut down later this year.
The statement from Eun Sung-soo comes as the South Korean government has launched a reinvigorated crackdown on ‘illegitimate crypto businesses’ and digital money laundering.
Seoul’s tax collection department kicked off the crackdown last week with the seizure of 25 billion won (£16.1 million) from over 600 tax evaders hiding their assets using cryptocurrency.
The latest development came from Eun during a National Assembly meeting on April 22, where he confirmed the Financial Services Commission (FSC) has yet to receive any Virtual Asset Service Provider (VASP) applications required under a recently amended law going into effect later this year.
“There are an estimated 200 cryptocurrency exchanges in the country, but if the current situation continues then all of them could be shut down,” he warned.
Eun was referring to South Korea’s anti-money laundering (AML) law, the Financial Transactions Reporting Act (FTRA), which was amended last year to account for the growing number of crypto exchanges.
The legislation requires VASPs to register with the FSC, and applications began being accepted in March but no exchange has applied as of yet. The FSC will only approve exchanges that can sufficiently demonstrate the robustness of their AML systems, with the deadline set for September 24.
The most important qualification for VASP registration is an official partnership with a local commercial bank. Out of the 200 exchanges to which Eun alluded, only the country’s four largest exchanges, known as the ‘big 4’ have established such partnerships thus far. Many industry insiders expect the big 4 will end up being the only exchanges to survive the regulatory tidal wave, but Eun’s comments have stirred up new worries.
On the day of Eun’s comments, the kimchi premium – the higher price of crypto in South Korea due to trade limitations – stood at around 13% but fell to as low as 2% the next day. This drop was coupled with a steep decline in bitcoin’s global price.