Financial authorities in South Korea are set to implement stringent eligibility reviews for major shareholders of cryptocurrency exchanges, as per local media reports on September 22. This move comes as a response to the increasing legal issues involving shareholders of prominent domestic exchanges like Bithumb and Upbit. The Financial Intelligence Unit (FIU) under the Financial Services Commission has formed a task force to reform the reporting requirements for coin exchanges, aiming to regulate and monitor the activities of major shareholders and mitigate potential risks to users.
One of the significant changes proposed by the task force is to align the eligibility reviews of major shareholders with the standards upheld within the banking sector. The intention is to introduce stricter measures to assess whether the majority shareholder maintains the qualifications necessary to operate a financial enterprise. This initiative aims to eliminate the regulatory grey area in which major shareholders of cryptocurrency exchanges currently operate.
Addressing Illicit Activities
The involvement of major shareholders in fraudulent and market-manipulative activities has raised concerns within the cryptocurrency market. To tackle this issue, the FIU is determined to scrutinize major shareholders of cryptocurrency exchanges more closely. By periodically assessing the eligibility of major shareholders, the government aims to prevent illicit activities and protect users from potential damage.
The reforms proposed by the task force will have significant implications for existing exchanges in South Korea. These reforms will be integrated into the coin exchange renewal reporting items, which are set to be implemented in October 2024. All virtual asset business operators, including exchanges, will be required to submit a renewal report every three years after their initial report acceptance. Upbit, one of the largest cryptocurrency exchanges in the country, will be the first to undergo this renewed reporting process in October 2021.
Prominent Cases Prompting Action
The examination of major shareholders was prompted by high-profile cases involving Bithumb and Upbit. Jong-hyun Kang, a major shareholder of Bithumb, is currently embroiled in a primary criminal trial for alleged fraudulent trading. Similarly, Song Chi-hyung, the predominant shareholder of Upbit and Chairman of Dunamu, is facing a Supreme Court trial for purported market manipulation. These cases highlight the need for stronger regulations and oversight of major shareholders in the cryptocurrency market.
In response to the growing concerns surrounding major shareholders, Representative Yoon Chang-hyeon of the People Power Party has proposed a legislative amendment to the Special Financial Services Act. This amendment calls for the incorporation of a review system specifically designed for major shareholders of virtual asset business operators. By introducing this review system, South Korea aims to enhance transparency and accountability within the cryptocurrency industry.
The initiation of stringent eligibility reviews for major shareholders of cryptocurrency exchanges marks a significant step towards creating a safer and more regulated market. By aligning with the standards upheld in the banking sector, South Korea aims to prevent illicit activities and protect users from potential harm. The proposed reforms will bring greater transparency and accountability to the cryptocurrency industry, ensuring the long-term stability and growth of the market.
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