South Korean regulator will expel ‘unfit’ crypto exchanges from the market starting this year

South Korea’s Financial Intelligence Unit (FIU) has publicly announced the tightening of scrutiny over crypto exchanges in the country and expel platforms deemed “unsuitable” from the local market starting in 2024. 

According to a Feb. 12 report in The Korea Times, the FIU also intends to expand the scope of screening procedures in the crypto market and prevent unfit exchanges from entering the national economy.

The regulator intends to introduce a preemptive trading suspension system for suspicious transactions on platforms already operating in South Korea, which will freeze transactions even during the pre-investigation phase. The Financial Action Task Force recommended the move, and 49 countries globally are also considering it.

The FIU has been licensing virtual asset service providers in South Korea since 2021. In 2024, the three-year terms for those licenses are running out, and companies are applying for renewal. Before granting the new permits, the FIU will examine the Anti-Money Laundering infrastructure, operational capacity and consumer protection measures of the exchanges. Those who fail the checks will be refused registration.

In the lead-up to the enactment of the country’s consumer protection law regarding virtual assets, which will take effect in July, a thorough examination is being conducted by authorities. Rhee Yun-su, the commissioner of the FIU, said:

In preparation for the enactment of the virtual asset consumer protection act from the latter half of this year and the large-scale renewal registrations, KoFIU will agilely push forward with the necessary institutional improvements to ensure the seamless operation of the cryptocurrency industry.”

The Virtual Asset User Protection legislation was passed by the National Assembly on June 30, 2023. The legislation integrates 19 crypto-related bills, providing a unified bill defining digital assets and imposing penalties for illicit trading activities like using undisclosed information, market manipulation and other unfair trading practices in crypto.

On Feb. 7, South Korean media reported that the FIU was investigating the crypto exchange OKX due to allegations of unregistered operation in the country. The same day, another Korean regulator, the Financial Services Commission, announced that crypto criminals dealing with more than $3.8 million in illegal profits could face up to life in prison.