South Korean officials are expected to shut down local cryptocurrency exchanges that fail to satisfy the standards before the deadline later in September, resulting in a loss of over $2.5 billion for investors in the nation.
A crackdown on cryptocurrency exchanges might result in massive losses for investors.
Before the September 24 deadline, the Financial Services Commission (FSC) required all cryptocurrency exchanges operating in the nation and overseas exchanges using the Korean won to use real-name accounts. However, less than half of local crypto companies have yet to fulfill the rigorous standards less than two weeks before the regulator takes action.
According to Financial Times, industry sources tell the Financial Times that just 20 out of 60 South Korean exchanges have created security mechanisms for personal information. Due to the small scope of their activities, the exchanges would still struggle to exist.
Around 40 cryptocurrency exchanges might close later in September, with just 20 local exchanges appearing to have attempted to meet some of the FSC’s standards. This move may also wipe out 42 “kimchi” crypt tokens from impacted exchanges.
As a result, investors who use these smaller exchanges might lose more than three trillion won ($2.5 billion). According to Cho Yeon-haeng, president of the Korea Finance Consumer Federation, large investor losses are predicted when trading is halted, and assets are frozen at numerous tiny exchanges since consumer protection is unlikely to be a priority for those exchanges facing collapse.
Lee Chul-Yi, the CEO of Foblgate, a mid-sized crypto firm, also remarked that
“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.”
Customers will be given a week’s notice before the deadline by affected crypto exchanges.
South Korean cryptocurrency exchanges must cooperate with local banks to utilize real-name accounts for their consumers. On the other hand, local banks are wary of partnering with these exchanges, citing the risk of money laundering and other associated crimes.
Some international exchanges have also responded to South Korea’s regulatory regulations by suspending Korean-won trading pairings or refusing to accept payments made using Korean credit cards.
Meanwhile, the FSC warned that crypto exchanges that do not satisfy the standards should notify users by September 17, one week before the deadline, that they may be shut down.