[Executive Summary]

• The Korea Financial Intelligence Unit (“KoFIU”) reported 16 overseas VA exchanges, which operated without a VASP registration, to the investigation agencies for violating the Act on Reporting and Using Specified Financial Transaction Information. In addition, the KoFIU announced that it plans to report those exchanges to the financial intelligence units (“FIUs”) of the corresponding countries.

The Korea Financial Intelligence Unit (“KoFIU”) reported 16 overseas VA exchanges, which operated without a VASP registration, to the investigation agencies for violating the Act on Reporting and Using Specified Financial Transaction Information (“the Law”). In addition, the KoFIU announced that it plans to report those exchanges to the FIUs of the corresponding countries overseas.

- List of the 16 overseas VA exchanges

: MEXC, KuCoin, Phemex, XT.com, Bitrue, ZB.com, Bitglobal, CoinW, CoinEX, AAX, ZoomEX, Poloniex, BTCEX, BTCC (formerly BTC China), DigiFinex, and Pionex

The KoFIU deemed that the above exchanges have operated targeting Korean nationals, considering their provision of websites in the Korean language, hosting events to attract Korean customers, and provision of a payment option with credit cards for purchasing virtual assets.

According to the Law, companies must meet certain requirements, such as ISMS certification, and report accordingly to the relevant authorities to operate virtual asset business in Korea. The KoFIU has previously notified several times that overseas exchanges mentioned above are operating businesses that require certain reports or registration according to the Law. However, the companies continued their business without any eligible reports.

Based on Article 6 of the Law, even if the action is taken overseas, if the action affects Korean nationals in the jurisdiction of Korea, the action is still subjected to the law.

The KoFIU requested the relevant institutions (such as the Korea Communications Commission) to block access to the 16 exchanges’ websites and applications from Korea.

It was also announced that the authorities plan to check and block overseas VASPs from providing a payment service/option with a credit card for purchasing virtual assets in Korea. (For reference, Korean card companies have banned the purchase of virtual assets using credit cards since 2018.)

Korean VA exchanges have already restricted withdrawals of MEXC, Phemex, and KuCoin. It is expected that they will also subsequently restrict deposits to and withdrawals from the above exchanges.

Korea’s virtual asset market, especially virtual asset-related businesses, seems to be under close scrutiny after the Terra-Luna incident. Market participants are advised to take extra precautions in selecting virtual asset exchanges to minimize potential risks as the authorities’ investigation continues.