April 19, 2024

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A Coinone employee looks at the cryptocurrency application at the Coinone customer service center in Yongsan-gu, Seoul. (Yonhap)

Close to a dozen local mid-sized cryptocurrency exchanges in Korea will shut down after they reportedly violated the country’s anti-money laundering regulations, industry sources said on August 1.

Eleven exchanges had allegedly used fraudulent collective accounts and will most likely have to close businesses, local media reported, quoting unnamed sources. The Financial Services Commission plans to halt their operations and notify the prosecution and police of the alleged illegal activities, they added.

The names of the exchanges were not disclosed and industry sources said it will be impossible for them to get approvals from the FSC to continue operations.

Industry observers have predicted a series of crypto exchange closures later this year since most exchanges -- except crypto giants Upbit, Bithumb, Coinone and Korbit -- have failed to find local bank partners to open up real-name accounts for customers, which is a prerequisite for business operations. Local banks have been reluctant to forge new partnerships with cryptocurrency exchanges due to concerns over increased responsibilities they must take on.

In the meantime, several mid-sized exchanges have already announced plans to shut down or suspend services or business.

Darlbit went out of business on July 15 after notifying customers earlier last month that it would stop deposit and withdrawal services.

CPDAX said on July 30 it will terminate services as of Sept. 1.

“It is not a temporary but a permanent measure to close business. Those who possess cryptocurrencies in the account must withdraw them before 3:00 p.m. on Aug. 31,” the company said.

Bitsonic announced via its official Telegram messenger channel on July 30 that it will temporarily stop providing services in a bid to renew their service systems.

“Once we are done with the renewal, we expect to achieve the Information Security Management System,” the company said.

ISMS is a set of procedures that manages customer’s data by proactively limiting any security breach. It is another prerequisite needed for exchanges to operate in Korea.

But questions remain as to whether they will be allowed to resume services. Local exchanges must finalize getting approval from the FSC by Sept. 24 for business operation. But the company said it will get ISMS only after it pauses services from Aug. 6 to Nov. 30. Since the timeline does not add up and it takes a considerable amount of time to get the ISMS up and running, it would render Bitsonic in a de facto shutdown, according to market insiders.

Meanwhile, People Power Party Congresswoman Cho Myeong-hee hopes to introduce measures to extend the reporting period of local exchanges open for business until Dec. 24. However, financial authorities recently said it stands by the original plan to complete the process by Sept. 24, because it has already given exchanges a six-month grace period since March.

By Byun Hye-jin (hyejin2@heraldcorp.com)