[비즈한국] With the implementation of the Act on Reporting and Using Specified Financial Transaction Information (Special Financial Transaction Act), some small and medium-sized cryptocurrency exchanges are facing potential operational shutdowns, sparking fears of significant losses for users whose investments are trapped in these platforms. In response, the government has announced its determination to crack down on illegal activities through a joint effort by relevant agencies.
The amendment to the Special Financial Transaction Act took effect on March 25. This amendment imposes obligations on virtual asset service providers to prevent "money laundering" and the "financing of terrorism," and outlines the requirements that financial institutions must follow when conducting transactions with these providers. This is because, despite the high risks of money laundering and terrorism financing due to the anonymity of virtual asset transactions, there was a lack of sufficient legal and institutional frameworks.
Moving forward, only those virtual asset service providers who report to the Korea Financial Intelligence Unit (KoFIU) will be able to continue their business. There are specific qualifications for reporting. According to the amended act, service providers must obtain an Information Security Management System (ISMS) certification and have a real-name verified deposit and withdrawal account. If a provider fails to meet these conditions, the head of the KoFIU may reject their report.
However, it has turned out that it is quite rare for virtual asset service providers to meet both conditions. According to the Korea Internet & Security Agency (KISA), as of March 31, there are a total of 16 virtual asset service providers that have been issued an ISMS certificate. Although KISA held an informational session on the ISMS certification system for virtual asset service providers last November, the impact has been minimal.
Securing a real-name verified deposit and withdrawal account also seems difficult. Although the law is now in effect, there are no specific guidelines for issuing such accounts, forcing banks to evaluate virtual asset service providers based on their own internal standards. Since the banks bear the liability, they are likely to evaluate these providers strictly. For this reason, only four exchanges—Bithumb, Upbit, Coinone, and Korbit—are currently operating with real-name accounts issued by banks like NH Nonghyup, Shinhan, and K-Bank.
Although a six-month grace period for legal compliance was granted, it appears that quite a few small and medium-sized cryptocurrency exchanges will likely cease operations because they cannot meet the reporting requirements. The domestic cryptocurrency exchange 'Daybit' announced via a notice that it would terminate its trading services effective June 1. It became the first exchange to declare a service shutdown following the implementation of the Special Financial Transaction Act.
The problem is the damage to investors whose funds are trapped in these exchanges. There is a high possibility of frequent cases where investors cannot withdraw their funds due to the use of insolvent exchanges. Such issues occurred even before the enforcement of the act; a representative example is the cryptocurrency exchange 'Coinzest.' The CEO of Coinzest was even called to attend the National Assembly audit in 2019 due to withdrawal restriction issues. However, it is reported that even two years later, there are still investors who have not recovered their funds.
In the case of the cryptocurrency exchange 'Bitsonic,' the customer service center has not been operating since the end of last year, citing the spread of COVID-19. Furthermore, with employees, including the CEO, not appearing at the office, various rumors have been circulating, and withdrawal delays have occurred, causing anxiety among investors.
The anxiety of investors is being fully reflected in trading volumes and current prices. While the current price of Bitcoin on Coinone was recorded at 59 million won as of the 23rd, it is highly unstable, being pegged at 35 million won on Bitsonic. Even the daily average Bitcoin trading volume is merely in the 10 million won range on Bitsonic, compared to the 300 billion won range on Coinone. It is essentially a situation close to an indefinite closure.
A Bitsonic official countered, "Bitsonic currently has about 30 employees working from home. While the Bitsonic customer center held in-person consultations until early March, we are now handling customer inquiries online due to the difficulty of in-person meetings amid the spread of COVID-19," adding, "The CEO is also working from home, and we are refraining from unnecessary meetings to ensure normal company operations."
Regarding the withdrawal delays, the official explained, "Withdrawals have been delayed due to an increase in requests. Not all withdrawals are delayed. We plan to normalize all withdrawals within April. The ISMS audit is also proceeding according to procedure, and we expect to go through the final review within April as well."
Currently, Daybit is showing similar signs. Daybit announced through a notice that it would sequentially terminate KRW/cryptocurrency deposits, withdrawals, and trading. However, when Bizhankook visited the Daybit website on the 23rd, the site was inaccessible, displaying only the message, "Please wait a moment! Connecting to Daybit."
In response, the government has decided to focus on cracking down on illegal virtual asset activities through a joint effort by relevant agencies between April and June. Specifically, the Financial Services Commission (FSC) plans to encourage financial institutions to monitor closely when withdrawals occur, and the KoFIU plans to notify investigative agencies or tax authorities after analyzing suspicious transactions. The Ministry of Economy and Finance plans to check for violations of the Foreign Exchange Transactions Act alongside the Financial Supervisory Service (FSS).
The police are expected to focus their crackdowns by categorizing illegal virtual asset activities and assigning them to specialized units, while the Fair Trade Commission (FTC) plans to conduct ex officio investigations into the terms of service of virtual asset providers to correct unfair clauses. The Korea Communications Commission (KCC) plans to look into the distribution of illegal information online, such as investment scams, quasi-deposit taking, and unauthorized virtual asset business operations. Finally, the Personal Information Protection Commission (PIPC) is expected to inspect the personal information handling practices of virtual asset providers and work to prevent personal data leaks and additional damage.
Koo Yoon-cheol, Minister of the Office for Government Policy Coordination, urged, "No one can guarantee the value of virtual assets. Virtual asset trading is a highly speculative transaction, and one must make careful decisions under their own responsibility," adding, "Furthermore, as illegal activities such as pyramid schemes, quasi-deposit taking, and fraud under the guise of virtual asset investment are occurring, one must be especially cautious about these as well."