Reserve Requirements Set the Tone
Cryptocurrency exchanges in South Korea have been handed a new set of rules. Starting September, these platforms must ensure a minimum reserve fund of 3 billion won ($2.3 million). The intent? To offer a buffer against potential pitfalls like hacking incidents or systemic malfunctions, ensuring that users’ investments remain protected.
How Do These Reserve Guidelines Work?
Exchanges are now obligated to park the greater of two figures:
- 30% of their daily average deposits.
- A fixed 3 billion won.
For exchange giants like Upbit, which often sees mammoth daily deposits, the government has set a cap. If 30% of their daily deposits overshoot 20 billion won, they don’t need to exceed this upper limit.
What’s Beyond the Financial Cushion?
It’s not just about money. The Korea Federation of Banks has amplified its focus on consumer protection. Enhanced Know Your Customer (KYC) protocols are on the horizon, along with additional measures for fund transfer authentication. Although a broad spectrum of regulations was initially set for January 2024, the urgency of these reserve norms has pushed the timeline to September.
Coordination with Banks
The Financial Services Commission’s Financial Intelligence Unit (FIU) hasn’t been idle. They’ve been sketching out the “standards for issuing bank real-name accounts” and have initiated conversations with multiple Korean banks. Such collaborative efforts aim to simplify the labyrinthine process exchanges face when attempting to secure real-name bank accounts.
Why This Swift Action?
After the devastating collapse of the Terra empire, South Korea recognized the need to shield its citizens from potential market downturns. Enter the “Virtual Asset User Protection Act”, a milestone legislation amalgamating 19 crypto-centric bills. This act targets “unfair” trading tactics like market manipulation or the clandestine use of pivotal data. Essentially, practices leveraging undisclosed information or manipulating market prices are now categorized as unfair trade activities.
What prompted this change?
The main driver is ensuring compensation in unforeseen situations such as system failures or hacking incidents.
Which exchanges are ready for these changes?
Industry leaders like Upbit and Bithumb have already geared up to meet these standards.
How does this affect smaller, coin-only exchanges?
Coin-only exchanges, with limited capital, might find these stringent measures challenging, especially after the introduction of the revised Specific Financial Information Act in 2021.