This rules come from the “Virtual Asset Real-Name Account Operation Guidelines” unveiled in July by the Korea Federation of Banks.
South Korean authorities have announced that crypto exchanges in the country will be mandated to hold 3 billion won ($2.3M) in a reserve bank account.
The new policy is a move by regulators to protect investors from loss of funds following the Terra crash last year.
South Korean exchanges to hold reserve fund
From September 2023, South Korean exchanges will begin to hold 3 billion won (or approximately $2.3M) in reserve bank accounts.
Per local media, the financial authorities and the Korea Federation of Banks will release a comprehensive guideline for the issuance of bank accounts to crypto exchanges in line with the new regulations.
The move comes as a consumer protection mechanism by the country’s regulators to protect investors from the damages that may follow a cyberattack or a crash.
“This is to fulfill the responsibility for compensation for damages to users in the event of an accident such as hacking or computer failure,”said the report
This rules come from the “Virtual Asset Real-Name Account Operation Guidelines” unveiled in July by the Korea Federation of Banks. The crypto exchanges are mandated to reserve 3 billion won or 30% of their daily average deposits, whichever is higher, to mitigate the risks and liabilities that may affect customers’ funds.
The upper threshold of the reserve fund is put at 20 billion won (or $15M).
Exchanges ready to implement
Major crypto exchanges in Korea, like Bithumb and Upbit, are already gearing to implement the new rules.
Upbit stated: “We are preparing without a hitch in accordance with the guidelines of the Korea Federation of Banks.”
In addition to reserve requirements, the regulations emphasises strengthening Know Your Customer (KYC) procedures and streamlining fund transfer laws.
With the exception of the reserve fund requirements, all other policies will start to be enforced by January 2024.
The new regulations came just two months after lawmakers in South Korea passed new regulations aimed at improving the protection of cryptocurrency investors. The Financial Services Commission and the Bank of Korea now have the authority to regulate cryptocurrency operators and asset custodians thanks to the legislation, which consists of 19 cryptocurrency-related bills.
In addition, exchanges involved in improper trading of crypto assets may also be sanctioned by the regulators.
In July, the East Asian country also asked that crypto exchanges reveal to customers which cryptocurrencies they hold or have issued.
The efforts by the regulators comes as a result of the implosion of Terra form labs last year that led to a series crash in the crypto market.
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