South Korea Tightens Crypto Exchanges with $2.3M Reserve Requirement
South Korea mandates crypto exchanges to maintain a minimum reserve of $2.3M in bank accounts to fortify oversight of the cryptocurrency market.
South Korea has introduced a new mandate for crypto exchanges operating within its borders to fortify its oversight of the cryptocurrency market. Starting in September, these platforms will be required to maintain a minimum reserve of 3 billion won (approximately $2.3 million) in bank accounts.
Following a series of challenges faced by the crypto sector in 2022, South Korea's decision to enforce this reserve requirement signals its intent to hold crypto exchanges more accountable. The initial guidelines for this mandate were rolled out in July by the Korean Federation of Banks. Under the directive named "Virtual Asset Real-Name Account Operation Guidelines," exchanges are instructed to earmark a minimum of 3 billion won or an equivalent of 30% of their daily average deposits for reserves. However, there's a cap: if 30% of the daily average deposit exceeds 20 billion won, only up to 20 billion won can be reserved.
The primary goal behind this reserve requirement is to ensure that exchanges can meet their obligations toward compensating users in the face of potential risks. These risks could range from hacking incidents to technical glitches. The move is also in line with the announcement from the Financial Services Commission (FSC) last month, which indicated that domestic firms would soon be required to disclose their crypto holdings. This disclosure is set to become part of the new accounting regulations from next year.
Major Exchanges Gear Up for Compliance
Leading South Korean crypto exchanges, such as Upbit and Bithumb, are already making strides towards adhering to the newly introduced mandates. Interestingly, Binance had been eyeing a re-entry into the South Korean market by potentially acquiring Gopax. However, recent reports suggest that this deal might not materialize.
South Korea's proactive approach to regulating the crypto space isn't new. In June, the nation's lawmakers greenlit legislation aimed at enhancing protection for crypto investors. This legislation, encompassing 19 crypto-centric bills, empowers entities like the Financial Services Commission and the Bank of Korea to supervise crypto operators and asset custodians. Moreover, it grants authorities the leverage to impose penalties in scenarios involving unfair trading of virtual assets.