South Korea’s financial government bodies have modified the anti-money laundering regulations that affect cryptocurrency exchanges in the nation, demanding local banks to tighten up the supervision of associated bank accounts. The new rules will come into force on July 10 for one year. The related industry, including cryptocurrency exchanges, has promised to give full cooperation and said the new regulations can serve as a momentum to raise the credibility of the industry.
The Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced on June 27 that they have amended the anti-money laundering guidelines that apply to crypto exchanges based on its recent inspections into three local banks – Nonghyup Bank, KB Kookmin Bank and KEB Hana Bank.
The FIU and the FSS will first strengthen monitoring of the operating accounts owned by cryptocurrency exchanges. Typically an exchange has several accounts with a bank – such as, for example, a depositing account that holds traders' funds on the platform, as well as an operating account that stores the exchange's own assets.
Until now, banks have only strengthened the monitoring of investors' depositing accounts at crypto exchanges. However, the FSC said that its recent inspections into the three institutions found that some exchanges had moved assets from investors' depositing account to their own operating accounts. In short, the exchanges made ill use of funds transferred to the operating accounts for the purpose of fraud or resorted to an expedient of using the operating account as a depositing account. In doing so, the exchanges had directly violated the guideline requiring exchanges to keep investors' assets separate from their own.
Accordingly, the FIU and the FSS are planning to require banks to keep an eye out for transactions in operating accounts as well. In cases where suspicious transactions come to light, banks must share the information, including identity of user, purpose of transactions and source of funds, with the financial regulators.
In addition, the FIU and the FSS will require financial firms to share the list of foreign currency exchanges and tighten monitoring of money wired to foreign exchanges. This is to prevent the chances of exchanges laundering money or evading taxes by making use of their operating accounts to purchase cryptocurrencies from foreign exchanges.
The new guidelines also include the provision that financial companies should refuse transactions when they cannot conduct an inspection into cryptocurrency exchanges. The amended guidelines will come into effect for a year starting from July 10 and it can be extended later.