Financial authorities in South Korea are taking steps to enforce strict eligibility reviews for major shareholders of cryptocurrency exchanges. This move aims to mirror the standards upheld within the banking sector and address the increasing legal turmoil surrounding prominent domestic exchanges like Bithumb and Upbit.
The Financial Intelligence Unit (FIU) under the Financial Services Commission has established a task force to reform reporting requirements for coin exchanges. These changes will be integrated into the coin exchange renewal reporting items, which will be implemented in October 2024. This revamp will serve as a foundation for the future operations of existing exchanges in the country.
Under the Enforcement Decree of the Specific Financial Information Act, all virtual asset business operators, including exchanges, must file a renewal report every three years. This process will begin again in October 2024, starting with Upbit, which completed the inaugural report acceptance in October 2021. The review process will primarily focus on scrutinizing the eligibility of major shareholders, ensuring that they possess the necessary qualifications to operate a financial enterprise.
The initiative by the FIU aims to curb illicit activities conducted by major shareholders who hold significant influence over coin exchange businesses. By implementing stringent eligibility reviews, the government can periodically assess whether a majority shareholder meets the required qualifications. This will help mitigate potential user damage caused by fraudulent practices and market manipulation.
Previous legislation under the Special Financial Services Act only required exchange representatives and registered executives to report and undergo review when declaring a virtual asset business. This left major shareholders operating in a regulatory grey area. However, recent cases involving major shareholders engaged in fraudulent trading and market manipulation have prompted authorities to investigate and examine these individuals more closely.
One notable case involves Jong-hyun Kang, a major shareholder of Bithumb, who is currently embroiled in a primary criminal trial for alleged fraudulent trading. Another case involves Song Chi-hyung, the predominant shareholder of Upbit and Chairman of Dunamu, who is facing a Supreme Court trial for suspected market manipulation. These high-profile cases have raised concerns and highlighted the need for greater scrutiny of major shareholders.
Representative Yoon Chang-hyeon of the People Power Party has proposed a legislative amendment to the Special Financial Services Act. This amendment seeks to incorporate a review system for major shareholders of virtual asset business operators. By implementing such a framework, South Korea aims to strengthen regulatory oversight and ensure the integrity of the cryptocurrency exchange sector.
South Korea is set to implement stringent eligibility reviews for major shareholders of cryptocurrency exchanges. This timely move aims to address legal turmoil, prevent illicit activities, and protect users from potential harm. By adopting banking sector standards and conducting periodic assessments, the country is taking significant steps towards a more robust regulatory framework for the cryptocurrency industry.
