New Reserve Requirements For South Korean Crypto Exchanges

South Korean cryptocurrency exchanges are gearing up to comply with new regulations that mandate them to hold a minimum of 3 billion Korean won (approximately $2.3 million) in reserve funds in designated bank accounts, effective from September. The Korea Federation of Banks introduced these guidelines, named "Virtual Asset Real-Name Account Operation Guidelines," with the aim of enhancing consumer protection within the crypto industry.

The reserve fund requirement has been put in place to ensure exchanges can meet their obligations to users in case of unforeseen incidents such as hacking or system failures.

The rules state that exchanges must maintain either 30% of their daily average deposits or a minimum of $2.3 million in reserves, whichever amount is higher. The maximum cap on these reserves is set at $15 million.

The guidelines also outline the need for stronger Know Your Customer (KYC) procedures and more refined rules for fund transfers. All policies, except the reserve requirement, are set to be enforced by January 2024.

Major exchanges such as Upbit and Bithumb appear to be well-prepared to meet these new regulations, while smaller coin-only exchanges could face challenges in meeting the stipulated reserve requirements due to capital constraints. These smaller exchanges have been struggling with declining trading volumes since previous regulatory changes were introduced. The new regulations are expected to help instill confidence in users and drive the adoption of cryptocurrency trading across various exchange platforms.

These regulatory changes are part of a larger legislative effort in South Korea to enhance transparency and user protection within the crypto industry. In June, the country's lawmakers passed a package of 19 bills that grant regulatory oversight authority to the Financial Services Commission and the Bank of Korea to regulate cryptocurrency operators and asset custodians. The legislation also empowers authorities to take action against unfair trading practices in the virtual asset sector.

Furthermore, South Korea's Financial Services Commission announced plans to introduce a disclosure requirement for domestic companies regarding their cryptocurrency holdings. This requirement, which will take effect next year, aims to enhance transparency within the crypto space by obligating crypto issuers to provide comprehensive information about their holdings, token specifics, business models, and internal accounting policies.