South Korea’s Financial Services Commission’s (FSC) decision on mandating the registration of local and foreign crypto exchanges could lead to a loss of $2.6 billion for the country.
According to reports by the Financial Times on the 13th, the regulatory overhaul could lead to a shut down of more than two-thirds of the country’s crypto exchanges.
Since most of the crypto exchanges deal in 42 ‘kimchi coins’, virtual currencies that are listed on Korean exchanges and mostly traded in Korean won, this could result in losses up to 3 Trillion won or $2.6 billion.
An amendment in the Financial Transaction Reports Act of South Korea, the country has mandated the cryptocurrencies exchanges to obtain licenses from the FSC to continue its operation in the region.
To comply with anti-money laundering (AML) and customer verification (KYC) procedures, crypto exchanges need to partner with banks and set up customer accounts with their real names.
The financial watchdog has set a deadline of Sept. 24 for exchanges to register and has recommended exchanges notify their clients of the possibility of closure by September 17 if they fail to meet regulatory requirements.
However, many crypto exchanges that come under the criteria are unable to meet the requirements since as many as 40 out of 60 crypto exchanges have not yet met the conditions, as per the news report.
Experts have pointed out that such a condition could cause a case equivalent to a bank run. Lee Chul-Yi, head of medium-sized exchange Foblgate, told the Financial Times:
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of alt-coins listed only on small exchanges. They will find themselves suddenly poor. I wonder if regulators can handle the side-effects.”
In the same article, Cho Yeon-Haeng, president of Korea Finance Consumer Federation remarked:
“Huge investor losses are expected with trading suspended and assets frozen at many small exchanges as customer protection will not likely be the priority of those exchanges facing an imminent closure.”