South Korean Regulator Intensifies Crypto Exchange Inspections
The Financial Supervisory Service (FSS) of South Korea is ramping up its efforts to inspect cryptocurrency exchanges in the pursuit of monitoring illegal transactions. This initiative follows a formal announcement made by the FSS on a Tuesday, indicating their strategy to ensure compliance in the vibrant but nascent digital asset market.
Targeted Exchanges Under Scrutiny
Initially, the FSS will focus on two Korean won-based crypto exchanges that have previously exhibited “unusual cases” of activity. Additionally, the regulator plans to extend its oversight to three more digital asset exchanges and a crypto wallet service provider, aiming to maintain a comprehensive surveillance framework across the industry. As reported by Yonhap News, the FSS is poised to evaluate other exchanges should complaints emerge regarding their operations.
Impact of the Virtual Asset User Protection Act
This move signifies the first significant inspections of Virtual Asset Service Providers (VASPs) since the implementation of the Virtual Asset User Protection Act in July. This legislation drastically tightened regulations, including severe penalties such as life imprisonment for individuals involved in illegal transactions exceeding 5 billion won (approximately $3.7 million).
Focus on Major Exchanges
According to a report by Newsis, the FSS has its sights set on major exchanges like Upbit, Bithumb, Coinone, Gopax, and Korbit. Moreover, inspections will be conducted at six additional facilities, including Coin Market Exchange and various custodians and wallet services, highlighting the broad scope of the FSS’s regulatory efforts.
Objective of Inspections
The main objective of these inspections is to identify any illegal or suspicious transactions within crypto exchanges, ensuring that all virtual asset providers adhere to established regulations. These regulations encompass the protection of virtual assets and the meticulous record-keeping of all cryptocurrency transactions.
Measures for Maintaining Market Order
“The FSS will establish market order through stern punishment against illegal activities that may be identified in the process of its inspection,” stated the regulator. The FSS also signaled a readiness to revise regulations if necessary, aiming to identify and rectify weaknesses within the system.
Focus on Compliance and Financial Practices
Additionally, the FSS intends to conduct on-site inspections of operators exhibiting poor financial health and inadequate internal controls regarding crypto asset storage. “We will review compliance with regulations on the storage and management of user assets,” said the translated statement.
Scrutiny of User Asset Management
The inspections will extend to examining the validity of management contracts with entities like banks, alongside a thorough review of deposit usage fee calculations and payments. Importantly, the FSS will also verify the actual possession of users’ cryptocurrencies to ensure they are managed distinctly from the exchange’s own assets and wallets.
Insurance and Reserve Fund Checks
Furthermore, the FSS will assess whether providers have appropriate insurance policies in place and are accumulating reserve funds to cover potential liabilities, such as hacking incidents. These measures are essential in fostering a secure environment within the rapidly evolving cryptocurrency landscape.