It’s expected that two thirds of South Korea’s crypto exchanges will be forced to close due to an impending regulatory crackdown, which has raised concerns Korean investors could lose a total of US$2.6 billion in assets.

If the South Korean crypto industry wanted regulatory clarity, it’s getting it in no uncertain terms.

On September 24, South Korean regulators will bring their new Financial Transactions Report Act into play, which will require all local crypto exchanges to to register with the Financial Services Commission (FSC) by the end of the month.

The crux of the compliance law is that, in order to toe the line with South Korea’s anti-money laundering and KYC (know your customer) measures, crypto exchanges must be registered with local banks, with traceable accounts for all customers.

According to a Financial Times (FT) report, about 40 of South Korea’s 60 crypto exchanges are yet to register with the FSC, with at least one expert fearing the consequence will be the wipeout of investor assets.

Speaking to the FT, Lee Chul-yi, head of medium-sized Korean exchange Foblgate, said:

“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of altcoins listed only on small exchanges. They will find themselves suddenly poor. I wonder if regulators can handle the side effects.”

According to Investopedia, a “bank run” occurs when the majority of customers of a bank or other financial institution withdraw deposits simultaneously over concerns of the bank’s solvency/ability to trade.

As for the FSC, it is reportedly introducing the stricter measures in order to provide greater consumer protection for Korea’s enthusiastic crypto-investing population.


‘Kimchi coins’ could be wiped out

According to the FT article, about 90 per cent of South Korean crypto trading is in altcoins, some of which are known as “kimchi coins” – which are largely Korean-developed crypto assets.

As many as 42 kimchi coins are expected to become defunct as a consequence of exchange non-compliance, according to estimates by Kim Hyoung-joong, head of the Cryptocurrency Research Center at Korea University.

Another expert quoted in the FT report, Cho Yeon-haeng, president of Korea Finance Consumer Federation, said “huge investor losses are expected” as trading ceases and assets freeze. Many small exchanges are “unlikely to offer customer protection” as they head towards closure, he said.

While smaller exchanges have been vehemently opposed to the new rulings and have been considering contesting them, South Korean banks have largely shown they’re only willing to deal with the country’s top crypto exchanges, which include: Upbit, Bitthumb, Korbit and Coinone.

It’s clearly great news for fans of centralisation and a monopolised market in South Korea.

As for Korean investors on the other side of the pun-intended coin, they might be set to provide decentralised exchanges, such as Uniswap and Sushiswap, with even more custom.

“I think everyone in the industry is hoping for a strong end to the year,” said Gunnar Jaerv, COO of Hong Kong-based First Digital Trust, in a Telegram chat with Stockhead.

“But we can’t assume that this will happen with all the regulatory crackdowns happening in Asia and the US. We’ll have to wait and see whether or not South Korea’s regulators are willing to discuss workarounds with exchanges.”

Keeping a more bullish general outlook, however, Jaerv added:

“Overall, we still view the market having strong fundamentals and sentiments, as newer technologies, projects and innovations are happening in the NFT, DeFi, remittance and custody categories of the industry.”