South Korea punches well above its weight when it comes to crypto. Despite a population of only 50 million, the country is estimated to be the world’s third largest crypto market, after the US and Japan. Around a third of professionals in the country hold an average of $5000 in crypto assets, and at the height of the 2017 boom, crypto prices were up to 50% higher on Korean exchanges due to enormous popular demand.
South Korea’s government, however, have not always shared the population’s enthusiasm, enforcing strict rules on initial coin offerings (ICOs), deposits on crypto exchanges and the activities of foreigners and financial institutions. So today’s news that the country’s authorities are to formally classify and regulate crypto exchanges is welcome news, both locally and internationally.
Local press reports confirm that crypto exchanges in Korea will soon form a brand new industry sector, that of “Cryptocurrency Exchange and Brokerage”, enabling exchanges to be regulated in much the same way as banks and other financial services institutions. The exact nature of this regulation remains to be seen, but most immediately it is expected that exchanges will be required to enforce stricter checks on traders and those using their platforms. This is likely to include additional customer verification checks, and know-your-customer (KYC) and anti money-laundering (AML) type safeguards.
South Korea currently has around a dozen dedicated crypto exchanges, and platforms are required only to pay a small fee in order to operate. Commentators say that this informal approach has contributed to a lack of security, and indeed Korean exchanges have had a troubled year with both Bithumb and Coinrail suffering serious hacks.
These latest developments mean that exchanges will soon require formal approval from government agencies and financial authorities, with the Financial Services Commission (FSC) overseeing exchanges and ensuring regulatory requirements are met. In the short term this might mean constraints for both providers and users, but in the longer term it seems clear that stricter controls and oversight can pave the way for higher-tier investors to enter the space.
