South Korea’s Financial Services Commission (FSC) announced restrictions for executive employees and exchange operators, preventing them from trading on their own platforms.
The FSC’s Financial Intelligence Unit (FIU) recently met with officials from crypto exchanges, presenting them their plan to modify the Act on Reporting and Use of Certain Financial Transaction Information, local news outlet Yonhap News Agency reported.
Cross-trading ban for exchanges
As an intermediary between financial institutions and law enforcement agencies in the country, FIU is the main organization responsible for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) policy formulation and implementation.
In March 2020, the amendment to the country’s Act on Reporting and Use of Certain Financial Transaction Information recognized cryptocurrencies as “virtual assets” and added anti-money laundering obligations with regard to crypto services. This amendment provided a legal basis for cryptocurrency exchanges in South Korea and obliged all crypto services to report to the FIU.
The newest modifications to the amendment inhibit cross-trading on crypto exchanges in the country. This ban is made in an effort to eliminate price manipulation and failure to comply with new rules will result in penalties of up to $89,656 (100 million Korean won) in the form of business license cancellations.
Trading-fee income illegal
In addition to the cross-trading ban and as part of countermeasures against hacking, the newest amendments will oblige crypto exchanges to hold at least 70% of customer deposits in cold wallets.
Since transaction fees charged on crypto trades are typically collected in cryptocurrencies, exchanges have no choice but to convert them into Korean won on their own platforms. The new regulation could mean compulsory commission-free trading.
According to the local news, crypto exchange representatives argued against the new ban that will make income from commissions illegal and heavily disrupt revenue flows vital to the industry.
Despite complaints from the exchange representatives, authorities insist that cross-trading presents a conflict of interest. They argued that bigger operators have superior access to information compared to retail investors and thus, allowing them to trade on their own platforms would be unfair.
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