A noteworthy stride in the South Korean cryptocurrency market, exchanges such as Upbit and Bithumb are mandated to maintain a reserve fund worth no less than 3 billion won (around $2.3 million). Kicking off in September, this evolved regulatory measure is designed to enhance user security, shielding them from potential losses from unprecedented events, including hacks or systemic failures.
This mandate is part of the newly unveiled “Virtual Asset Real-Name Account Operation Guidelines” promulgated by the Korea Federation of Banks. Their aim? To insist exchanges put in reserve either 3 billion won or an amount equivalent to 30% of their average daily deposits, whichever nets to be higher. This stipulation is set to address potential responsibilities that may rise from risk events.
In view of an explicit upper limit, the reserve fund is earmarked to hit a ceiling at 20 billion won that is about $15 million, thus ensuring financial stability. This progress in regulations follows after legislators in South Korea ratified an all-encompassing crypto-centric law package that covers 19 bills.
Under this legal structure, the Financial Services Commission and the Bank of Korea have been ushered in to enjoy oversight authority, granting them power to regulate crypto operators and custodians. It provides them the ability to crack down on unfair trading practices occurring in the virtual asset sector.
More than just establishing reserve requirements, these regulations aim to fortify Know Your Customer (KYC) processes and optimize rules for fund transfers. The rollout of these measures, with exception to the reserve fund requirement, is primed to start by early 2024.
On a flip side, smaller coin-only exchanges are finding the terrain a bit challenging due to capital constraints, dipped trading volumes and the challenge of meeting these stipulations. Larger exchanges, like Upbit, will focus on maintaining a reserve equating to 30% of their daily deposit requirement.
In an effort to curb cryptocurrency-related crimes and shield investors, South Korea has also put in place a dedicated inspection unit. This legislative drive in cryptocurrency is headed by the Virtual Asset User Protection Act stimulus that’s been rolled out in June this year. This groundbreaking law is underpinned by the primary aim of protecting the users and traders in the digital asset ecosystem. Surely, the steps taken by South Korean regulators illustrate a tiered approach to crypto asset regulation. The added safety measures promise a more secure experience, but also draw scepticism: will smaller exchanges may find themselves facing unsustainable financial burdens? Only time can tell.
Source: Cryptonews
