South Korean Crypto Exchanges Required to Maintain Reserve Fund

Starting in September, South Korean cryptocurrency exchanges will need to hold a reserve fund of at least 3 billion won ($2.3 million) in designated bank accounts. The regulations aim to improve user protection in the event of hacking or system failures. Leading exchanges like Upbit and Bithumb are reportedly prepared to follow the new guidelines outlined by the Korea Federation of Banks.

New Regulations for Crypto Exchanges in South Korea

Exchanges must reserve at least 3 billion won or 30% of their daily average deposits, whichever is higher, to cover potential liabilities from risk events.
The reserve fund cap is set at 20 billion won ($15 million).
South Korean legislators recently passed comprehensive crypto-focused legislation comprising 19 bills.
The legislation grants oversight authority to the Financial Services Commission and the Bank of Korea.
Authorities can take action against unfair trading practices in the virtual asset sector.

Challenges for Smaller Crypto Exchanges

Smaller coin-only exchanges may struggle to meet the reserve fund requirements due to capital constraints and declining trading volumes following previous regulatory changes. The new regulations also focus on improving Know Your Customer (KYC) procedures and refining rules for fund transfers. Enforcement of these policies, except the reserve fund requirement, will begin in January 2024.

South Korea’s Regulatory Drive for User Protection

South Korea has established a dedicated investigation unit to combat cryptocurrency-related crimes and protect investors. The country’s regulatory efforts are guided by the Virtual Asset User Protection Act passed in June 2021, which aims to safeguard traders and users in the digital asset ecosystem.

Hot Take

South Korea’s new regulations for cryptocurrency exchanges demonstrate the country’s commitment to enhancing user protection and ensuring the integrity of the digital asset market. While larger exchanges seem well-prepared to meet the reserve fund requirements, smaller exchanges may face challenges due to limited capital. It remains to be seen how these regulations will impact the overall cryptocurrency landscape in South Korea.