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South Korea is increasing cryptocurrency regulations by making KYC verification necessary along with other licensing requirements.
Banks that deal with crypto customers in South Korea will now be facing new regulations. The FSC (Financial Services Commission) announced on Sunday that banks will have to classify cryptocurrency customers as “high-risk” entities, making them subject to robust KYC (Know Your Customer) and monitoring rules.
The new FSC guideline also makes it mandatory to report any high-volume transactions made by suspicious entities.
This means that banks will have to report suspicious transactions and maintain KYC compliance prior to partnering with cryptocurrency exchanges. A Korea Times report stated that South Korean banks are already looking for ways to minimize regulatory risks that emerge from dealing with cryptocurrency exchanges. In order to safeguard against crypto-related risks, the Korea Federation of Banks has called a meeting to discuss new rules and practices.
Additionally, Crypto exchanges in South Korea are also mandated to seek a register with the KoFIU (Korea Financial Intelligence Unit), the anti-money laundering (AML) state agency, prior to September 24, 2021. After this date, the KoFIU will assess the legality of their operations for three months.
The report also revealed banks will be required to deny services to clients that do not comply with KYC requirements or fail to report suspicious activity to the FSC’s anti-money laundering unit. Exchanges will have to terminate transactions made by accounts that are not based on real names.
Out of 60, only four exchanges are currently implementing real-name identity verification, while others are operating on a pseudo-name basis for crypto clients.
South Korea has supported cryptocurrencies over the years. However, the latest developments in the world of crypto have marked the return of the so-called “Kimchi Premium” which was a price increase of 26% for cryptocurrencies. This premium led to intense regulatory scrutiny and a major crackdown on illegal trading activities across foreign exchanges.
International regulatory bodies, such as the Financial Action Task Force (FATF) have strongly recommended the implementation of KYC regulations and robust transaction monitoring standards to mitigate the risk of financial and identity fraud.
Given that cryptocurrency platforms now fall under the definition of financial institutions, they too are liable to perform KYC and AML (Anti-money Laundering) procedures.