Facing new law, crypto exchange start voluntary shutdown

Local cryptocurrency exchange Daybit is the latest company to voluntarily shut down its operations due to the toughened anti-money laundering law, the company said Sunday.

Chain Partners, which operates Daybit, said it plans to close the service by June 1, citing rigid regulations in explaining its decision. Earlier this year CPDAX, operated by blockchain technology developer Coinplug, also decided to opt out.

“The operation of Daybit will be halted in phases by June 1 as we are unable to provide normal transaction services amid the toughened regulatory environment after the Act on Reporting and Using Specified Financial Transaction Information went into effect recently,” the company said. Daybit’s contracts with Shinhan Bank are to end before June.

Many other local exchanges are facing similar obstacles in meeting requirements under the new law and could decide to follow in Daybit’s footsteps, industry experts said.

“There are more than 10 exchanges that completed (information security management systems), which is one of the requirements for exchanges that hope to be registered with the Financial Intelligence Unit, but they are having difficulties to get real-name accounts from local banks,” said a source on condition of anonymity. “Out of more than 100 exchanges, we are very likely to see more closures,” the source added.

The revised Act on Reporting and Using Specified Financial Transaction Information requires crypto exchanges to be equipped with information security management systems and to form partnerships with local banks by Sept. 24. On that date, the grace period ends and all crypto accounts must be linked with bank accounts in the holders’ real names.

Currently, accounts with the big four exchanges -- Upbit, Bithumb, Coinone and Korbit -- are linked to local lenders, but the smaller ones are struggling to find partners as banks are reluctant to take on the responsibility of screening exchanges.

Banks have been complaining about what they view as an added burden and a lack of government guidelines.

To make matters worse, the recent volatility in the market and skeptical remarks from top financial officials are making it more difficult for local lenders to associate with the cryptocurrency trading business.

Eun Sung-soo, chairman of the Financial Services Commission, the country’s financial regulator, said Thursday that local cryptocurrency exchanges could face shutdown. He also added that he did not believe the government needed to protect crypto investors.

“When the crypto market is bullish, partnering up with crypto exchanges might look like good business but at the moment, especially when markets fluctuate like recently, the risks seem to outweigh the small transaction fees that banks could earn from the partnership,” a bank official said.

The price of Bitcoin plunged from a record high of 82 million won ($73,500) on April 14 to about 56 million won on Friday in local markets.

(gypark@heraldcorp.com)