South Korean digital currency exchanges are struggling under the weight of new regulations. The latest victim is Daybit, which announced that it’s shutting down in a month. Daybit cited the toughened regulations that seem to only favor the big exchanges, while pushing the smaller rivals out of business, as the reason for its closure.
South Korea has been in the past few years striving to regulate the digital currency industry. One of the measures it has put in place relates to anti-money laundering and identity verification requirements. This regulation came into effect a month ago. While it will protect the Korean investors, some of the requirements have proven to be too much for the smaller exchanges.
Daybit has become the second local exchange to succumb to the new requirements this year. In a statement, Chain Partners, the firm that owns the exchange, revealed, “The operation of Daybit will be halted in phases by June 1 as we are unable to provide normal transaction services amid the toughened regulatory environment after the Act on Reporting and Using Specified Financial Transaction Information went into effect recently.”
One of the requirements under the new regulatory regime is for every digital currency user to link his exchange account to his bank account. This requires all exchanges to have a relationship with a banking partner. And as is the case in many other countries, including the United States, exchanges in Korea are struggling to find the banking partners.
Daybit has been banking with Shinhan Bank. However, this relationship ends in May and the exchange has been unable to find another partner.
It’s a different narrative for the Big Four exchanges in Korea. Upbit, Bithumb, Coinone and Korbit have all continued to flourish. The four have maintained relationships with Korea’s largest banks.
One unnamed source captured the situation in Korea, revealing to the Korean Herald:
“There are more than 10 exchanges that completed (information security management systems), which is one of the requirements for exchanges that hope to be registered with the Financial Intelligence Unit, but they are having difficulties to get real-name accounts from local banks. Out of more than 100 exchanges, we are very likely to see more closures.”
The banks have insisted that digital currency exchanges are too risky for them. One bank official stated, “When the crypto market is bullish, partnering up with crypto exchanges might look like good business but at the moment, especially when markets fluctuate like recently, the risks seem to outweigh the small transaction fees that banks could earn from the partnership.”
Earlier this month, OKEx Korea shut down, citing the new AML rules as well. Binance Korea had shut down four months earlier in December last year. Coinplug, a smaller local exchange, also shut down earlier this year.
See also: CoinGeek Live panel, Digital Currency & Global Compliance: Tools & Tips for Exchanges, Wallets & Other Service Providers
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