Digital coin purge deepens as banks tighten screening, authorities mull Singaporean system

[Photo by Park Hyung-ki]

South Korean banks who become liable for viability of cryptocurrency exchanges they back by opening accounts are tightening screening and oversight ahead of the new rule related to crypto trade, a move likely to accelerate purge on unverifiable coins.

K-Bank, an internet-only bank that service account opening for crypto trade, recently began a review on cryptocurrency exchange operator Upbit for money launching risks, according to financial authorities and industry sources on Sunday. NH Nonghyup Bank and Shinhan Bank are also conducting similar reviews on the exchanges they service – respectively Bithumb and Coinone, and Korbit.

The banks are checking the cryptocurrency exchanges in the context of risk assessment guidelines mandated by bank association to verify if they are Information Security Management System (ISMS) certified or have any history of violating financial laws.

From September, cryptocurrency exchanges can allow trade to only real-name account holders backed by banks. Crypto exchange must prove the security of their trading data system and transaction transparency before new financial rules take effect on Sept 25. If not, they would literally go out of business.

The country’s top 4 cryptocurrency exchanges – Upbit, Bithumb, Coinone, and Korbit, which are all ISMS-certified for the safety of their trading system, also must pass the banks’ review to have their contracts renewed and stay in business.

Crypto exchanges, including the four major players, have been sorting out digital coins trading on their platforms and delisting the doubtful ones to meet the tightened standards.

Even the No. 1 exchange Upbit removed about 30 coins in just a week despite backlashes from investors as having doubtful coins raises the risk of failing bank’s safety check, observed an industry expert.

The situation is worse for smaller exchanges, as they cannot even meet banks for transaction account verification. Crypto exchange operators are turning to regional banks upon failing to find partners in the capital.

Major lenders like KB Kookmin, Hana and Woori plan not to service crypto traders.

The Korean financial authorities reportedly are mulling to adopt Singapore’s system that authorizes trading of only those cryptocurrencies worth exchangeable to fiat money. If decided, more digital coins will disappear from Korea.

The financial authorities will review both licensing and registration systems, said an official, adding that the official announcement will be made after the ruling party lawmakers table the proposal on the related law.

In Singapore, only bitcoin and ethereum are recognized. Under the rigid rule, 90 percent of digital coins in Korea would become inaccessible.

As of Sunday, there are only 125 digital coins remain active in cryptocurrency exchanges in Korea, compared with 365 last month.

Exchanges have been sweeping out minor coins amid struggles to meet the new cryptocurrency rules. Last Friday, Upbit announced it will delist 24 coins as of June 28. Bithumb, the No. 2 exchange in Korea based on transaction value, removed four coins last week. More can be shown out the door.

Probit, the No. 5 crypto exchange in Korea, kicked out 145 coins from Korean currency based marketplace as of June 1.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]