South Korea’s Financial Authorities Ramps Up Scrutiny on Crypto Exchanges’ Pledge Services

02/24/2023 05:47 • Blockchain Buzz • 133 views

On February 24, the South Korean financial authorities recently asked the country’s encryption exchange based on the Korean won to prove the driving principle of its pledge service and the evidence related to its merchantability. Three quarters of the Korean-based crypto exchanges that provide pledge services in the country recently admitted that they had received a request from the country’s Financial Supervision Institute to investigate their pledge services.

South Korea’s financial regulator is investigating the pledge service of the country’s encryption exchange

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South Korea’s financial authorities have recently shifted their attention to investigate the pledge services provided by cryptocurrency exchanges in the country. According to reports, three-quarters of these exchanges had already received a request from the country’s Financial Supervision Institute to provide evidence that supports their pledge service’s merchantability and driving principle.

Pledge services offered by cryptocurrency exchanges allow traders to borrow a certain amount of cryptocurrencies by depositing an equal amount of other cryptocurrencies or Korean won as collateral. These services have been gaining popularity in the country as Korea has been actively participating in the cryptocurrency market. However, there have been concerns by financial regulators that these services could be used for money laundering or illegal activities.

To address these concerns, South Korea has been tightening its regulatory grip on the cryptocurrency industry, including exchanges that allow pledges. Under the amended South Korean Act on Reporting and Use of Specific Financial Information law that took effect on March 25, 2021, cryptocurrency exchanges must register with the Financial Intelligence Unit (FIU) and comply with the same KYC and AML requirements as banks.

The heightened scrutiny on pledge services provided by cryptocurrency exchanges is part of the authorities’ efforts to maintain financial stability and prevent illegal activities in the country’s cryptocurrency market. The Financial Supervision Institute’s request for evidence supporting the merchantability of the pledge services aims to ensure that these services provide adequate protections for investors.

While some cryptocurrency exchanges have already complied with the authorities’ request for evidence, others are concerned that this could impact their business operations. In addition, the high cost of complying with the new regulations may also result in consolidation in the cryptocurrency exchange industry.

In conclusion, the increasing scrutiny on cryptocurrency exchanges providing pledge services in South Korea reflects the regulatory authorities’ growing attention towards the risks and opportunities posed by the country’s growing cryptocurrency market. While the country’s efforts to establish guidelines and regulations to ensure investor protection are necessary, the challenge for them will be to strike a balance between preventing illegal activities while fostering innovation and growth in the cryptocurrency market.

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