South Korean Regulators Begin Inspections
South Korean regulators will be conducting a detailed inspection of six local banks to determine if their cryptocurrency services are operating in a lawful manner. The inspection is being carried out by the country’s Financial Supervisory Service (FSC) and the Financial Supervisory Commission (FSC). Banks whose cryptocurrency services will be inspected include: Korea Development Bank, Woori Bank, Shinhan Bank, NH Bank, Kookmin Bank, and the Industrial Bank of Korea.
South Korean regulators want to check if these banks are in compliance with the country’s anti-money laundering efforts. It seems that the regulators are working in a very systematic fashion since these inspections are being performed right after the country banned anonymous cryptocurrency accounts. Apparently, it looks like a follow-up to check which banks are implementing these new policies.
Crackdown on Fraudulent Activities
Choi JongKu, chairman of S. Korea’s FSC, stated, “We’re reviewing all possibilities under the current law to take action”. In addition to monitoring money-laundering activities, South Korean regulators also want to cut down speculative trading. According to the chairman, cryptocurrency is an ineffective mode of payment, which has the potential to be used in carrying out illicit activities.
Hacking of Cryptocurrency Exchanges
Mr. JongKu mentioned that malicious hacking of cryptocurrency exchanges have resulted in huge financial losses for organizations, businesses, and individuals. What’s interesting to note here is that South Korean regulators have only found 111 accounts that have some involvement with cryptocurrency exchanges. However, the combined value of these accounts is approximately $1.8 billion. And, it is believed that each account has generated millions of virtual accounts. The details of how this information was gathered is not clear.
What Are These Virtual Accounts?
Since the commercial banks under investigation here do not directly handle cryptocurrency trades, crypto-exchanges have to open up virtual accounts. Virtual accounts are opened at these banks, and crypto-investors use this facility to help them obtain fiat currency, which they get through their crypto-trading activities. According to South Korean regulators, one of the main objectives of these inspections is to make sure that these virtual accounts are operating in a lawful manner. If findings reveal that they’re not, then they could be shut down.
Woori Bank Expresses Concerns
Woori Bank, one of S. Korea’s largest banks and also among banks being inspected, has been quite active in the cryptosphere. In fact, it’s participating in a huge pilot study program which aims to test the effectiveness of making payments using Ripple’s XRP. However, the bank said that it had to close down all its virtual accounts after South Korean regulators placed a ban on anonymous accounts. According to the bank, it is not feasible (cost-wise) to manage such accounts if the account holder’s identity has to be verified.
More Investigations Will Follow
Financial Supervisory Commissions chairman would like to minimize the risks involved in crypto-trading. Of course, this will require even more investigations to be conducted. Since the last few months, South Korean regulators have been very active in trying to create some sort of legal framework around the country’s crypto-market. Regulation authorities have taken several measures to clamp down on cryptocurrency activity. For example, the FSC put an outright ban on ICO crowdfunding back in late September 2017.
Now, it will be interesting to see what the findings of these investigations reveal. If regulators order that these virtual accounts be shut down, then they better have some very good reasons for doing so. But, this will not stop people from lashing out if the accounts do get closed. Therefore, regulators need to be prepared to handle this as well.