South Korean crypto exchanges are preparing lawsuits to sue the government or challenge it in the constitutional court if they fail to meet a September regulatory deadline and are obliged to close.
New regulations for crypto exchanges, which have already passed into law, will be enforced as of September 24. But thus far none of the nation’s 60 functioning crypto exchanges have met the exhaustive list of criteria required to obtain operating permits.
Even the nation’s “big four” exchanges – Upbit, Korbit, Bithumb, and Coinone – are still to secure the key banking deals required, while the regulatory Financial Services Commission (FSC) is set to conduct on-the-spot checks at all 60 South Korean trading platforms.
But while exchanges are holding onto the hope that the FSC and the government will soften their stances as the deadline approaches, anger is mounting in the crypto sector, with a grim acceptance across the industry that as things stand “most exchanges” are still set to close on September 24 unless the government backs down.
According to Yonhap and Dailian, the chasing pack of larger non-big four exchanges is growing increasingly disgruntled with what they see as “unreasonable demands” placed upon them and the regulator’s “preferential treatment” of the big four.
Although the exchanges are currently hoping to change the government and the FSC’s minds on the severity of regulations through direct appeals, the media outlets suggested that if they were indeed “forced to close,” they would not go quietly – and would be prepared to launch legal battles for their survival, claiming unfair treatment.
Meanwhile, South Korean banks have thrown another spanner into the government’s works – by telling regulators they don’t want to be held accountable for crypto exchanges’ risk assessments.
Banks have been told that they must conduct risk assessment checks on trading platforms to assess whether they feel exchanges and their senior management are suitable clients for business partnerships. Without banking contracts, exchanges will not be able to conduct anonymity-free, real-name banking. And the government has insisted that exchanges operating without banking partners will be forced to close.
As such, banks have been given the power of judge, jury, and executioner in the sector. The problem is, it seems, they do not want this responsibility – and are urging regulators to help shoulder the blame in the event of a hack or fraud allegations.
Per Seoul Shinmun, commercial banks “have requested that they not be held accountable” even should a case of money laundering occur at an exchange.
The media outlet added that uncertainty is also plaguing the government and senior financial sector leaders, who are unsure about whether they should continue to build a strict cryptocurrency licensing system that could “shrink the market,” or do the opposite, introducing “loose standards that could encourage speculation.”
The report’s authors concluded that in the political world, opinions are now “divided over the regulatory methods” set out in the new law, and could be having second thoughts about the proposed exchange registration system and banking protocols.
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