The latest news emerging from South Korea indicates that Bitcoin exchanges are facing a surprisingly increased level of scrutiny of commercial banks amid the renewal of banking services. The revelation comes as the intergovernmental Financial Action Task Force (FATF) continues to urge countries to enact stricter regulatory controls over the crypto industry. This according to a report .
Banks Apply AML Pressure
The ‘big four’ Bitcoin exchanges in South Korea — Upbit, Korbit, Bithumb, and Coinone, aren’t finding the renewal of banking services process to be the usual breeze. According to a report by local media platform BChain, commercial banks are demanding stricter anti-money laundering (AML) controls from these exchanges as a prerequisite for continuation of banking services.
Reports indicate that the increased scrutiny is because of the recent FATF guidelines which called for more AML compliance from crypto businesses. Before the emergence of the new FATF guidelines, the ‘big four’ could reportedly renew their banking access every six months with hardly a hitch.
Commercial banks in South Korea are also demanding these strict AML compliance measures as a way of protecting themselves from litigation. FATF guidelines make banks legally liable in any case of money laundering involving cryptocurrency exchanges.
Earlier in the year, Bithumb was part of a group of five exchanges to agree to full compensation in the event of users losing their funds. This move applied to both instances within and outside the control of these platforms.
This move by Korean banks is part of increasing global scrutiny on crypto-businesses. Some stakeholders have even called on authorities to strike a balance between creating robust laws and allowing digital innovation.
More Shut Downs Ahead?
The emergence of stricter AML controls for Bitcoin exchanges also comes with additional cost burden for these platforms. Speaking to The BChain, an anonymous official of one the exchanges in the country said:
“In order to meet this standard, small and medium-sized trading sites that lack operating costs are likely to disappear from the market.”
Coinnest has been forced to shut down its operations due to what it called challenging market conditions in the country. This new move banks might cause even more platforms to go out of business.
In 2018, only one of the big four managed to post a profit. Bithumb’s losses even dwarfed the two other exchanges that ended the year in the red, signaling a problem for the crypto trading market in South Korea.
Although the current sentiment in the crypto market has a slightly positive shade to it, things were not so hunky-dory in 2018 and, the financial results reported by South Korean exchange Bithumb, are a testimony to the roller-coaster ride that was 2018.
According to a report by The Korea Times, Bithumb, South Korea’s largest exchange by reported trading volume, witnessed massive financial losses in 2018 due to a combined effect of the rapidly declining value of digital assets and low trading volume.
Of a truth, wild price swings in cryptocurrencies’ prices can have a huge adverse impact on the exchange’s profitability. This is because exchanges collect a fee from users in crypto for every transaction they make. One could argue that with a constant decline in the price of cryptocurrencies, exchange’s profits might also run thin.
Further, Bithumb also found itself on the receiving end of a massive hack attack which took place on April 1, 2019. Per sources close to the matter, the attackers stole EOS and XRP tokens worth $12.5 million and $6.2 million, respectively. Unfortunately, the recent hack took place just ten months after the exchange had recovered funds from another attack that it succumbed to in June 2018.
In January 2019, Bithumb’s operator, BTCKorea.com axed 30 out of its 340 employees on the back of declining trading volume and the free fall observed in the price of digital currencies.