Six major South Korean banks including Shinhan Bank, the second largest bank in the country, will officially begin providing local cryptocurrency exchanges with virtual bank accounts.
In early January this year, South Korean cryptocurrency exchanges were requested by local financial authorities to improve their Know Your Customer (KYC) and Anti-Money Laundering (AML) systems. Two of the many requirements the government demanded local exchanges to comply with were the prohibition of foreigners from trading cryptocurrencies and the elimination of anonymous cryptocurrency trading accounts.
As a part of the AML system change, banks were asked to shut down virtual banking accounts provided to cryptocurrency exchanges. Kookmin Bank, the largest bank in South Korea, refused to provide services to cryptocurrency trading platforms, leading local investors to fear for a potential cryptocurrency trading ban, which was later refuted by the South Korean government.
Recently, Bithumb and Korbit, two of the biggest cryptocurrency exchanges in the market, announced major changes to their AML systems. By the end of January, the Korbit team stated that foreigners will no longer be able to deposit Korean won to any South Korean exchanges — disabling fiat deposits and withdrawals for foreigners.
The Korbit team also noted that traders with Shinhan Bank accounts will only be able to trade cryptocurrencies starting February. While the newly implemented AML system can be inconvenient for existing users, it is an optimistic movement for the market, since the government will no longer be able to threaten the market with a cryptocurrency trading ban. The Korbit team stated:
“As previously announced, in order to comply with the identification and anti-money laundering regulations being enforced by the government, the current KRW deposit method will be terminated by the end of January 2018.
To use the new KRW deposit method, which is slated to be implemented within this month, you must have a Shinhan Bank account registered under your legal name. Please use this time to create a banking account at Shinhan Bank. We will follow up with further instructions on how to input the new KRW withdrawal account information on Korbit.”
Therefore even though Kookmin Bank has disabled its virtual trading accounts for cryptocurrency exchanges, Shinhan Bank, IBK Bank, NongHyup bank, KDB Industrial Bank, and Woori Bank will start providing services to cryptocurrency exchanges beginning on February 1.
The South Korean government has decided to take a practical approach by regulating and fostering the cryptocurrency exchange market. As Financial Services Commission (FSC) chairman Kim Sang-jo previously stated, banning the cryptocurrency exchange market is unrealistic.
“[Banning cryptocurrency exchanges] is not realistically possible. Based on the electronic commerce law, the government doesn’t even have the authority to close down cryptocurrency trading platforms.
From the viewpoint of an economist, it is not a fair and transparent decision to outright ban economic activity. Whether it is excessive speculation or not, the gain or the loss is the responsibility of the investor.”
Each trader or investor on a South Korean cryptocurrency exchange, is provided with a virtual bank account which can be used to deposit or withdraw large amounts of fiat money, or Korean won. Virtual bank accounts allow traders to execute fiat-to-cryptocurrency trades efficiently, without having to withdraw or deposit using actual bank accounts that can be costly and time-consuming.