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As the cryptocurrency exchange (exchange) was eventually reorganized into a ‘big 4 system’, it was incorporated into the system under the supervision of the financial authorities, but there are still variables that can shake the related industry.
This is because anti-money laundering (AML) risks that can occur in exchanges still exist, and the National Assembly is scheduled to start discussing a bill to regulate the virtual asset market. In addition, banks that have entered into partnerships with four major exchanges, such as Upbit, Bithumb, Coinone, and Korbit, which have succeeded in surviving, are planning to discuss whether to extend the contract again in 3 to 6 months. Financial authorities are also planning to conduct a detailed review of the reported exchanges.
The existing 66 exchanges have undergone major changes as of the 24th. According to the enforcement of the ‘Act on the Reporting and Use of Specific Financial Transaction Information (Special Act)’, only the four major exchanges, including Upbit, can broker transactions between money and virtual assets such as KRW and USD. The 25 exchanges that have obtained ISMS certification but failed to establish a real-name account issuance alliance with banks operate only coin markets that only broker inter-coin transactions without financial intervention. 37 exchanges that were not certified by ISMS were forced to close.
The exchange will also be subject to the management and supervision of the financial authorities from the 25th. In the Virtual Asset Inspection Division newly established in the Financial Intelligence Unit (FIU) under the Financial Services Commission, nine people are in charge of managing and supervising exchanges.
◇ From March next year, the mandatory travel rule… Exchanges set to come up with self-rescue measures
According to the financial sector and industry on the 26th, the representative variable is ‘Travel Rule’. Travel Rule is an International Anti-Money Laundering Organization (FATF) regulation that requires both sender and recipient information to be collected when coins are moved between cryptocurrency exchanges. According to the Specific Financial Transaction Information Act, from March 25 next year, all exchanges must comply with the Travel Rule. Exchanges that violate this rule may be subject to sanctions up to a maximum business suspension.
This is a guideline that must be followed by coin market operators as well as KRW market operators, but a standardized travel rule system has not yet been established in the industry. Due to the nature of Travel Rule, which requires the collection of both sender and receiver information, a system that can be applied to all exchanges is needed, but it has not been able to speed up because the outline of the institutional exchange has not been revealed.
Treblerule is also viewed with concern by the banking sector. This is because the risk of money laundering can be transferred to the bank that issued the real-name account if the exchange does not comply properly. In August, NH Nonghyup Bank asked Bithumb and Coinone to “block deposits and withdrawals of cryptocurrencies between other exchanges until the Travel Rule system is established.”
Of course, the industry is taking its own measures. Last month, Bithumb, Coinone, and Korbit launched a joint venture ‘Code’ to build the Travel Rule system. The plan is to build the system with the goal of before the end of March next year, when the Travel Rule is to be implemented, and plans to link with the exchange where business operators will be reported in the future.
Although the four major exchanges succeeded in surviving by receiving real-name accounts from the banking sector, the partnership is temporary and the situation may change rapidly in the process of reconsideration in the future. The bank plans to re-discuss whether to partner with the four major exchanges in 3 to 6 months. In particular, Shinhan Bank has signed contracts with Korbit every six months, but this time it signed a partnership only until December. As the deadline to report virtual asset operators was imminent, the real-name account was first given out, but there is an atmosphere that concerns about AML risk in exchanges remain.
◇The virtual asset law that has been discussed in the National Assembly… Are the exchange reporting requirements lowered?
The virtual asset law, which has been discussed in the National Assembly, is also one of the major variables. Although exchanges have entered the system, discussion of the bill is inevitable as there is no mechanism to monitor the market and protect investors.
Among the virtual asset bills, one that can cause a major change in the industry is how to set up barriers to entry for exchanges. The amendment to the Special Provisions Act, proposed by Rep. Chang-hyeon Yoon and Cho Myung-hee, respectively, contains contents such as deleting the requirement for a real-name account, which is a requirement for reporting on the KRW market exchange, or requiring a real-name account to be issued after the report is accepted. On the other hand, in a bill proposed by lawmakers Yang Kyung-sook and Lee Yong-woo of the Democratic Party, Kwon Eun-hee of the People’s Party, and Bae Jin-kyo of the Justice Party, the threshold for entry into the system of the exchange was raised from the reporting system to the authorization system.
Politicians plan to start legislative work from October with the goal of institutionalizing it within this year, but the legislative process is expected to be somewhat lengthy as there are only 13 virtual asset-related bills proposed and there are many issues.
Exchanges are also paying attention to the parliamentary review of virtual asset-related laws. Exchanges that have decided to operate only the coin market this time are expecting that the barriers to entry will be somewhat lowered through the virtual asset bill while continuing discussions on real-name account alliances with banks.
The industry is also paying close attention to the extensive management and supervision process of the financial authorities. The FIU is planning to conduct a review for those who have reported business for up to three months. The FIU also plans to check the compliance measures of virtual asset operators under laws such as separation management of customer deposits and prohibition of dark coin handling, but in the process, reports from some exchanges may not be accepted.
Even an exchange that has submitted a report this time can get caught in a ‘disguised account’. As a result of the FIU’s full investigation of financial companies such as banks, savings banks, credit unions, and post offices for one month in June, it is reported that companies that obtained ISMS certification also opened disguised accounts. Disguised accounts are a violation of the Real Name Financial Act and can be punished. The FIU delivered information about the company that opened the fake account to the investigation agency.
In addition, the FIU plans to closely manage and supervise whether the business operator has properly fulfilled its anti-money laundering obligations even after the report is accepted.
goodday@news1.kr
