South Korean crypto exchanges have been dealt another crushing blow – with all of the nation’s trading platforms failing their regulatory “consulting” audits.
The development will not bode well for the sector with just over a month to go until new regulations kick in – with even the “big four” exchanges (Korbit, Bithumb, Upbit and Coinone) failing their audits.
As previously reported, in June, the regulatory Financial Services Commission (FSC) teamed up with a number of government ministries and state-owned IT firms to conduct a “complete investigation of corporate accounts,” as well as exchanges’ “coin management and investor protection” protocols.
The FSC also drafted in police officers and a number of external contractors from the private sector – including security experts and network specialists.
In July, the auditing process uncovered the fact that a number of exchanges were using “fake” or fraudulent banking operations – with a number of cases referred to the prosecution service.
But the “fake” banking offenders were mostly smaller trading platforms. And many in the sector had expected the heavily backed likes of Upbit and co to pass the audit with flying colors – such has been their zeal to comply with regulators’ wishes and remain trading after September 24, when all exchanges will become directly answerable to the FSC and its Financial Intelligence Unit (FIU) agency.
The FSC found that out of 33 exchanges, only 25 had gained information security management system accreditation, while anti-money laundering protocols were still “lacking” at most exchanges. They also noted that none of the trading platforms had obtained the required real name-authenticated banking contracts they will need to continue doing business after September 24.
The auditors added that in numerous instances there were “no or insufficient” staff assigned to AML, while risk management system resources were also “insufficient.”
The regulator added that in “many businesses” there were “no standards” in place for listing or delisting tokens, with inadequate fraud detection systems and a lack of tools to help detect incidents of possible price manipulation and insider trading.
The FSC also reported that there were cases whereby exchanges “mixed” the management of customer deposits and cryptoassets “without distinguishing” between the fiat and coins owned by customer and the company itself. In many cases, it remarked, there were insufficient staff resources to deal with sudden spikes in exchange users or trading volumes.
Banks have previously warned that only the “big four” could be left standing at the end of September – but some might argue that even this doom-laden prediction is starting to look somewhat optimistic.
– Smaller South Korean Crypto Exchanges Begin to Shutdown, Suspend Services
– Crypto Exchange Self-Regulation Kicks In as Regulators Start to Kick
– Regulator Identifies ‘Fake’ Crypto Exchange Bank Accounts
– Signs of a Crypto Regulatory Climbdown from South Korea’s Ruling Party
– S Korean Regulator to Force Crypto Overseas Exchanges to Abide by its Rules
– Korbit Reopens Offline Customer Service Center in Seoul’s Busy Gangnam