Korean banks are conflicted on whether to extend alliances with local cryptocurrency exchanges amid the strict financial regulations.
Financial Information Act Implementation
For the time being, three Korean commercial lenders – Shinhan, NongHyup, and K bank – have formed partnerships with major crypto exchanges. It will enable exchanges to handle transactions in a stable manner, as their customers can trade digital currencies via real-name bank accounts provided by the associated banks.
Major lenders — like KB, Hana, and Woori — still continue to be cautious about signing crypto partnerships in the run-up to a so-called special act on financial information.
The Act aims to ensure that financial transactions, for example, foreign-exchange transactions, contribute to the prevention of criminal acts and the establishment of a healthy and open financial system, provide for reporting, and the use of the specific details needed to control money laundering and terrorism finance. Exchanges cannot function unless they protect their users’ real-name bank accounts, the Act emphasizes. It shall enter into force in September, after a six-month grace period.
But the banks’ risk of suddenly shifting their position on such alliances is still slim because of Bitcoin’s new craze, industry officials claim.
The industry source reported that the creditors are careful about implementing the Act since banks may face harder sanctions if their associated exchanges raise any security concerns. According to the Financial Services Commission, after “taking an individual decision,” banks will issue real-name trading accounts to see if their potential partner trading is sufficiently reliable concerning protection.
Crypto Regulation Enforcement
A couple of years ago, KB and Woori, and some government lenders released local exchange accounts in real names but, following the tough cryptocurrency regulations imposed by the financial authorities in 2018, chose not to extend the deal. Under the guidelines on money laundering, banks must take more responsibility for potential cyber-attacks and other financial incidents if exposed to their associated exchanges.
The lenders will wait and see in the next few months before they can resume their trade relationships.
Another source of the bank industry has mentioned that banks will extend their user base in and abroad through partnerships with the exchanges. However, the lenders who have suspended relationships would not adjust their practices at this stage because they fear that they will lose more if their affiliates are swayed in a financial disaster at a time when authorities are reiterating their willingness to tighten regulations and oversight following banks engaged in a debacle with hedge funds last year.
The proposed crypto income tax rule in South Korea is also delayed. To push implementation until January 2022, the National Assembly of South Korea demanded a pause in the crypto tax law.