Around $2.6 billion worth of digital assets could be wiped out when South Korea’s deadline for crypto exchange registration rolls around on Sept. 24, the Financial Times reported Sunday.
South Korea’s Financial Transaction Reports Act is requiring all crypto exchanges to register with the Financial Services Commission (FSC) by the end of the month. To comply with the country’s anti-money laundering and know-your-customer procedures, crypto exchanges need to register with local banks and set up real-name accounts for their customers.
The FSC has advised exchanges that are unable to meet regulatory obligations must inform their customers of any potential closure by Sept. 17.
Around two-thirds or 40 exchanges out of 60 have yet to register, according to the report, with experts saying it could create a “bank run” scenario. A bank run occurs when the majority of customers attempt to withdraw their money fearing the institution will cease to exist.
In some extreme cases, financial institutions’ reserves have failed to cover the cost of customer withdrawals, and experts are warning the same for smaller crypto exchanges in the country could occur.
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of alt-coins listed only on small exchanges,” said Lee Chul-yi, head of medium-sized exchange Foblgate. “They will find themselves suddenly poor. I wonder if regulators can handle the side effects.”
The Financial Times cites industry data and points out that roughly 90% of South Korean crypto trading is conducted in altcoins, some of which are known as “Kimchi coins.” Kimchi coins are tokens primarily developed by Koreans.
Around 42 Kimchi coins are expected to disappear, according to estimates by Kim Hyoung-joong, head of the Cryptocurrency Research Center at Korea University.
Another expert cited in the report, Cho Yeon-haeng, president of Korea Finance Consumer Federation, said that “huge investor losses are expected” as trading is suspended and assets are frozen. Many of the smaller exchanges are unlikely to offer customer protection as they stare down immediate closure, he said.
On Tuesday, Bitfront, a crypto exchange subsidiary of Japanese tech giant LINE, is expected to cease providing a Korean-language service and halt payments with South Korean credit cards as it seeks to appease regulators and cut ties with the country.
Last month, Binance halted trading pairs and payment options using the South Korean won, intending to proactively comply with local regulations.
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