South Korea’s Financial Supervisory Service (FSS) along with its Financial Services Commission (FSC) will be conducting joint inspections on six major banks in the country. It was reported that this move came about due to the banks’ involvement in offering virtual currency accounts to exchanges that deal in cryptocurrency. The banks that were named in the inspection are the Industrial Bank of Korea, Kookmin Bank, Korea Development Bank, NongHyup Bank, Shinhan Bank, and Woori Bank.
FSC Chairman, Choi Jong-Ku, mentioned that the inspection is being done to ensure that anti-money laundering laws are being complied with and real names are being used for these virtual accounts. He further went on to explain that the inspection is being performed to guide banks in light of its results. Choi stated that since virtual currency is not able to be used as regular currency for payments, it has instead been morphed to be used for “illegal purposes.” He elaborated that examples of those purposes include scams, money laundering, and fraudulent operations. He was quick to point out how this has caused significant problems for the institutions involved, including the cryptocurrency exchanges themselves. He mentioned that this has resulted in “hacking problems at the institutions that handle cryptocurrency” and “an unreasonable spike in speculation.”
These comments could be referring to how numerous South Korean cryptocurrency exchanges have fallen to hacking attempts in the last year. The most recent of them was Youbit, which shut down and filed for bankruptcy after being hacked twice in 8 months, losing 17% of its assets to hackers as a result. Unsurprisingly, that news raised regulatory and security concerns as South Korea is home to some of the most active cryptocurrency exchanges in the world (it also currently holds the world’s most significant private Bitcoin exchange). Cryptocurrencies have gained immense popularity within the country as everyone from students to industry professionals are looking to benefit from the rise of cryptocurrencies, most notably Bitcoin.
However, since the cryptocurrencies are not recognized as financial products, the cryptocurrency exchanges involved in these transactions can go unregulated. Additionally, no rules are currently imposed for protecting the users of the virtual currency.
According to reports, about 111 cryptocurrency exchange accounts are currently being operated and their collective deposits are estimated to be $1.8 billion.
Now, in order to overcome any crises that could incur due to the risk involved with cryptocurrencies, the authorities will be going through extensive processes to see if the banks complied with the regulations to control money laundering in addition to other risk factors.
The authorities also aim to shut down any cryptocurrency exchanges that do not have transparent records to present.
Furthermore, in a move to control frenzied investment into cryptocurrencies, it was recently directed by the authorities to only use real-name bank accounts at cryptocurrency exchanges for deposits and withdrawals.
It was also reported recently that South Korea would ban the issuance of new virtual accounts cryptocurrency exchanges altogether. The new guideline is reportedly going to come into effect around January 20.