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New rules could relieve South Korean banks of liability for crypto-related crimes as they partner with exchanges

This could encourage financial institutions to confidently enter into partnerships with platforms, which is a requirement in the registration process of exchanges.

View from N Seoul Tower at night / Image by: Wikimedia Commons

Tue, 29 Jun 2021, 13:27 pm UTC

South Korean banks have been a bit wary about entering into partnerships with the country’s crypto exchanges. This wariness comes from the possibility that they may be held accountable for crypto-related crimes such as money laundering due to such partnerships.

Financial regulators are planning to address this unease by developing new rules “that could relieve Korean banks from responsibility” when screening crypto exchanges, according to Bitcoin.com. This could encourage financial institutions to confidently enter into partnerships with platforms, which is a requirement in the registration of exchanges.

Korean Banks remain reluctant to open real-name accounts for traders on domestic cryptocurrency exchanges, the Korea Herald wrote on Sunday. The reasons hide in recently adopted regulations obliging the trading platforms to partner with local financial institutions. Few of them have managed to do so as banks fear they could be held liable for money laundering, fraud, and other offenses related to cryptocurrency transactions.

South Korea’s financial regulator, the Financial Services Commission (FSC), is mulling on the possibility of issuing guidelines to lift part of the burden from banks. According to an unnamed official, these guidelines will likely include “no-action letters” where government officials will formally state that they do not recommend legal action against financial institutions in case such issues surface in the future.

The unnamed official said that the FSC is expected to arrive at its final decision on the matter by the end of next month.

As a result of the amendments made to the Act on Reporting and Using Specified Financial Transaction Information, crypto exchanges operating in South Korea are now required to partner with local banks that should open real-name accounts to their uses. However, financial institutions are reluctant to partner with smaller crypto exchanges due to the perceived risks.

In fact, only the country’s Big 4, Upbit, Bithumb, Coinone, and Korbit, have successfully established partnerships with banks. NH Nonghyup Bank is the partner bank for the crypto exchanges Bithumb and Coinone, Korbit has partnered with Shinhan Bank, and Upbit partnered with K Bank.

“Banks are essentially forced to take responsibility for issuing real-name accounts,” a banking industry official said. “It, therefore, is reasonable that there should be some immunity for undertaking the dangerous and costly task”

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