*Cryptocurrency exchanges will be forced to shut down starting from September 25, if it fails to obtain Real Name Accounts.

*Investors at the risk of not knowing whether cryptocurrency exchanges will close.

*Only way for investors to recover money is court Judgements by civil lawsuit.

Which cryptocurrency exchanges have Real-Name Accounts?

As the enforcement of the Amended Act on Reporting and Using Specified Financial Transaction Information(the “Specified Transaction Information Act”, or also known as the Korea AML Act) draws near, on March 25, 2021, Virtual Asset Service Providers(VASPs) are getting ready for their (1) Information Security Management System(ISMS) certification, (2) clean finance-related criminal records of CEOs and other directors of the company, and (3) Real-Name Accounts.

The issuance of Real-Name Accounts is predicted to be the hardest obligation to meet. This is because bank account openings are at the discretion of Korean local banks. Currently the only cryptocurrency exchanges that have Real-Name Accounts are Bithumb, Upbit, Coinone, and Korbit. There is not one cryptocurrency exchange that is in contract with Korean local banks since 2018.

Before this Amendment, cryptocurrency exchanges could use their corporate bank accounts—which are not Real-Name Accounts—to convert fiat money into cryptocurrencies. These traditional methods will now be prohibited.

Cryptocurrency exchanges which only convert cryptocurrencies with other cryptocurrencies do not need to apply for Real-Name Accounts. But most cryptocurrency exchanges will need to because the whole point of exchanges is to convert fiat money into cryptocurrencies and vise versa.

This is a problem because all of the cryptocurrency exchanges except for Bithumb, Upbit, Coinone, and Korbit in Korea will need to shut down if they are not able to open real-name bank accounts by September 25, 2021. This is when the six month grace period ends after the amended Act is enforced on March 25, 2021.

Investor Risks

The bigger problem is that investors will be excluded from knowledge of whether the cryptocurrency exchange he or she is using will shut down. Whether VASP reporting obligations are accepted by the KoFIU will only be notified to the applying VASP. The Amendment fails to include protection for customers of VASPs which fail to meet AML obligations.

KoFIU will upload a list of VASPs that have reported AML obligations on their website. However, once the AML report is accepted the name of the VASP will be erased from the list. Thus, customers will not be able to know whether not being on the list means that VASP is shutting down or has passed the AML reporting obligations.

In addition, the AML reporting obligations is at the discretion of cryptocurrency exchanges in the sense that they can either choose to meet AML requirements or close their business. Therefore, there are criticism that the Korean financial authorities have overlooked investors’ damages if cryptocurrency exchanges shut down.

In fact, Korean cryptocurrency exchanges such as Coinzest or Roublit went bankrupt in 2019, causing immense damages across many users of their services. Same damages could be caused in 2021 if cryptocurrency exchanges in Korea fail to obtain real-name bank accounts by September. Investors bear the risk of not being able to recover their assets—but the current law does no offer any protection. The only way for investors to recover money would be by civil lawsuits.

Should you have any questions on conducting crypto business in Korea, please contact Cha & Kwon Law Offices.

*Note

The KoFIU is the primary government agency coordinating Korea’s AML and CFT policy. On March 24, 2020 the Act on Reporting and Using Specified Financial Transaction Information(the “Specified Financial Information Act”) was amended. The amendment defines cryptocurrency as a “virtual asset” and requires virtual asset service providers(VASPs) to adhere to AML obligations. (For an outline of the newly amended Specified Financial Information Act redirect here.)