South Korean Crypto Exchange Daybit Shuts Down, Cites Toughened AML Laws

South Korean cryptocurrency exchange Daybit will voluntarily shut down its operations due to the toughened AML law, the company said Sunday.

April 26, 2021 | AtoZ Markets South Korea’s local cryptocurrency exchange Daybit recently stated that due to the tightening of anti-money laundering (AML) laws, the company will voluntarily shut down its business. Chain Partners, which runs Daybit, said that due to regulatory factors, the platform plans to shut down before June 1.

Earlier this year, CPDAX, operated by blockchain technology developer Coinplug, also decided to close.

Daybit said: “After the Act on Reporting and Using Specified Financial Transaction Information came into effect recently, due to the stricter regulatory environment, we are unable to provide normal transaction services, so Daybit will Operations will be suspended in stages before June 1.” Daybit’s contract with Shinhan Bank will expire before June.

Other crypto exchanges on the verge of shutting down like Daybit

Industry experts say that many other local exchanges face similar obstacles in meeting the new regulatory requirements and may decide to follow Daybit’s approach.

“At present, more than 10 exchanges have completed the (information security management system) requirements. This is one of the requirements that exchanges that want to register with the Korean Financial Intelligence Agency (KoFIU) need to meet, but it is difficult for them to obtain real-name accounts from local banks. “A source who asked not to be named said, “Of the more than 100 exchanges in South Korea, it is likely that more exchanges will be closed.”

The regulatory wave is raging

According to the provisions of the Financial Services Commission (FSC), the amendment to the “Reporting and Use of Specific Financial Transaction Information Act” requires all companies engaged in the exchange, storage and management of virtual assets to report their business to the Korea Financial Intelligence Agency. The amendment came into effect on March 25, giving the exchange a six-month grace period.

In order to report to KoFIU, the local exchange must find a bank willing to issue real-name accounts for its virtual asset clients. Exchanges that fail to do this will eventually have to be closed because investors who use non-KoFIU-registered exchanges are prohibited from trading with financial companies and banks. This prevents users from transferring funds from personal bank accounts to exchanges and vice versa, thereby preventing the purchase and withdrawal of cryptocurrencies.

South Korea’s four major cryptocurrency exchanges, Bithumb, Coinone, Upbit, and Korbit, have successfully cooperated with banks, but about 100 smaller exchanges are still struggling. These unregistered exchanges only had five months before they were forced to close. Since banks are responsible for screening various exchanges, they are unwilling to take risks and issue real-name cryptocurrency trading accounts.

As AtoZ Markets reported, the South Korean government also announced on April 18 that it plans to crack down on any illegal activities involving cryptocurrency, including money laundering and fraud, which will put greater pressure on banks. The government is currently negotiating to regulate overseas remittances and all the banks linked to crypto transactions because of concerns that funds will flow from the country to overseas in the form of purchasing crypto assets.

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