Korean Financial Authorities to “Expel” Crypto Exchanges Deemed Substandard: Report

Enhanced Regulation and Consumer Protection in South Korea’s Cryptocurrency Sphere

• South Korea’s KoFIU announces rigorous measures to expel unfit cryptocurrency exchanges, elevating market standards and scrutiny.
• A proposed preemptive trading suspension system aligns with international anti-money laundering practices, enhancing transaction security.
• The impending Virtual Asset Consumer Protection Act, effective July 2024, marks a significant stride in consumer rights and industry stability.

In a move to regulate the cryptocurrency industry, the Korea Financial Intelligence Unit (KoFIU) has announced a sweeping reform that will see unfit cryptocurrency exchanges expelled from the market. KoFIU announced the decision on February 12, 2024, indicating a major shift in South Korea’s approach to overseeing the growing digital currency market.

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Introduction to Korea’s New Crypto Regulatory Measures

Under the new regulations, set to be implemented this year, cryptocurrency exchanges failing to meet stringent standards will be barred from operating. KoFIU’s initiative aims to enhance scrutiny and inspection of these exchanges, marking a significant tightening of the regulatory landscape. These measures reflect South Korea’s commitment to fostering a safe and stable digital currency environment.

The move comes as part of KoFIU’s annual work plan, which includes a range of policy directions and measures developed in consultation with industry experts and cryptocurrency policy advisory committees. Central to these plans is the blocking of entry for unfit virtual business operators, a strategy designed to preclude questionable entities from advancing into the market.

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International Alignment and Preemptive Strategies

An aspect of this policy shift is the consideration of a preemptive trading suspension system. Aimed at curbing suspicious transactions even before an investigation is launched, this system is in line with practices in 49 countries, including Britain, Germany, and Finland. It shows South Korea’s alignment with international anti-money laundering standards as advocated by the Financial Action Task Force.

Since the fall of 2021, KoFIU has managed the official registration of numerous coin exchanges operating in Korea. With many of these exchanges due for registration renewal in the latter half of 2024, the first half of the year will witness KoFIU conducting thorough examinations. These inspections will focus on anti-money laundering compliance, operational capacity in the Korean won market, and consumer protection measures.

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Towards a Safer Digital Currency Market

The stringent nature of these upcoming inspections is a reflection of South Korea’s commitment to the smooth implementation of the country’s inaugural virtual asset consumer protection law, set to take effect in July 2024. This law represents a significant milestone in the protection of virtual asset consumers, a sector that has seen exponential growth in recent years.

Rhee Yun-su, the commissioner at KoFIU, emphasized the importance of these measures, stating, “In preparation for the enactment of the virtual asset consumer protection act from the latter half of this year and the large-scale renewal registrations, KoFIU will agilely push forward with the necessary institutional improvements to ensure the seamless operation of the cryptocurrency industry.”

This decisive action by South Korea signals a new era of governance in the cryptocurrency sector. By setting high standards and enforcing rigorous oversight, South Korea is positioning itself as a leader in establishing a secure and transparent digital currency market, one that promises to protect consumers while fostering innovation and growth in this dynamic industry.

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