South Korean regulators said they have started on-site
inspections of the country’s large commercial banks, marking a change of tack
in authorities’ efforts to clamp down on cryptocurrency speculation in one of
Asia’s hottest bitcoin markets.
South Korea’s lead securities regulator said Monday that it is
inspecting six of the country’s biggest financial institutions to monitor their compliance with anti-money-laundering
obligations related to cryptocurrency trading.
The inspection comes 10 days after South Korea banned the use of
unidentified virtual accounts for trading digital currencies. It is
a slightly different approach from regulators’ previous attempts to regulate
entities in the cryptocurrency industry largely by dealing with them directly—a
difficult task since they aren’t generally covered by existing laws.
“We’re reviewing all
possibilities under the current law to take action,” Choi Jong-ku, head of
South Korea’s Financial Services Commision, said in a press briefing Monday.
Mr. Choi said the regulator has drafted a separate policy on cryptocurrency
trading that is under discussion at the National Assembly.
While the commercial banks don’t
process cryptocurrency trades themselves, the bitcoin exchanges create “virtual
accounts” at the major commercial banks for each of their clients. Virtual
accounts are bank accounts used by investors to hold or receive fiat money when
they buy or sell cryptocurrency.
Mr. Choi said the financial watchdog
was also looking to monitor how banks verify the identity of virtual account
holders, warning investors and banks to exercise caution in dealing with
cryptocurrencies.
Findings from the bank inspections will
be used to determine whether to suspend banks from providing virtual accounts,
Mr. Choi said.Bitcoin vs. Regulators: Who
Will Win?
He also suggested that commercial banks may be facilitating
illegal activities by not actively monitoring these virtual accounts.
“There is growing concern that banks,
which should actively act as gatekeepers to prevent the distribution of crime
and illegal funds, are aiding and encouraging them,” Mr. Choi said.
The government’s concern is not unwarranted. Last month, a South Korean cryptocurrency
exchange filed for bankruptcyafter it was hacked for the second
time. The Wall Street Journal reported that South Korean investigators are looking into North Korea’s
possible involvement in the heist.
South Korea has placed a high priority on stamping out criminal activities tied
to digital currencies. The global craze over Bitcoin has been particularly
fervent in South Korea, where the virtual currency is priced consistently
higher than in other countries. The arbitrage gap—dubbed the “kimchi premium”
in honor of the country’s traditional fermented cabbage dish—widened this
weekend to some 40%.
Bitcoin’s price in South Korea was 50%
higher than in other markets at one point over the weekend, according to Park
Nok-sun, an analyst at NH Investment & Securities in Seoul. “In the past,
people sold their coins when the price reached this high, but there is just so
much optimism at the moment that no one is selling,” Mr. Park said.
It remains unclear how much the
government’s additional measures would impact the bitcoin market. “Should the
government ban banks from setting up virtual accounts, it’ll affect the flow of
new assets, but not affect money that has already entered the market,” said
Shon Ga-ram, a lawyer at HMP Law, a Seoul-based law firm.
The six banks under inspection are South Korea’s NH Bank, Industrial Bank of Korea , Shinhan
Bank, KB Kookmin Bank, Woori Bank and Korea Development Bank.
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