- Daybit exchange has announced it’s shutting down, citing regulatory factors.
- Harsh regulations in South Korea have seen most of the smaller exchanges struggle, with only the ‘Big Four’ managing to find willing banking partners.
South Korean cryptocurrency exchange Daybit has announced that it will close down all operations by June 1, citing recently introduced anti-money laundering (AML) regulations.
In a statement on Sunday, Daybit owner Chain Partners revealed that the new regulatory regime makes continued operations unfeasible. Daybit thus becomes the second Korean crypto exchange to make its exit following CPDAX which shut down earlier in the year.
▪ CRYPTO EXCHANGES FACE SHUTDOWN
— Arirang News (@arirangtvnews) April 20, 2021
Daybit shutdown portends more closures
It will be recalled that in March, the Korean Financial Services Commission (FSC) released a new set of AML regulations for crypto finance organizations which was confirmed by the country’s cabinet the same month. This was swiftly followed by a change in the country’s tax code coming into effect in January 2022 which imposes a 20 percent tax on all crypto trading profits above 2.5 million KRW (roughly $2,300).
The most significant effect of the new regulations has been to effectively restrict the ability of Korean crypto exchanges to access banking services. According to the Korean Herald, while more than 10 exchanges have demonstrated compliance with updated information security management standards under the new law, getting real-name banking services is still a big issue.
Like other smaller exchanges with existing banking relationships, Daybit had a contract with a Shinhan bank slated to expire by the end of June. Due to the updated regulations however, the bank is no longer willing to renew this contract.
Speaking about the decision to close down in the statement released to the Korean Herald, Chain Partners said:
The operation of Daybit will be halted in phases by June 1 as we are unable to provide normal transaction services amid the toughened regulatory environment after the Act on Reporting and Using Specified Financial Transaction Information went into effect recently.
Smaller exchanges suffer most from banks’ reticence
There are more than 100 active exchanges in South Korea, but this number looks set to dwindle drastically over the coming few weeks as more exchanges fail to secure the needed banking relationships ahead of the September 24 deadline. After this deadline, all crypto wallets hosted on exchanges are required by law to be linked to real-name bank accounts so as to provide full visibility for AML purposes.
At present, only the so-called Big 4 – Bithumb, Upbit, Coinone and Korbit – have managed to convince Korean lenders to take on the mammoth task and the associated risk. Speaking on Thursday, April 22, FSC chair Eun Sung-soo suggested that more exchanges will have to shut down and that the Korean government does not need to protect crypto investors.
Unsurprisingly, banks have been generally unwilling to take on smaller crypto exchanges in what is perceived as a high-risk, low-reward partnership from their point of view. This has also been compounded by recent volatility in crypto markets, which saw bitcoin fall over 20 percent in less than 24 hours between April 23 and 24.
In the meantime, Prime Minister-designate Kim Boo-kyum has promised to “look into” the controversial proposed 20 percent crypto tax law following a series of petitions about the new crypto regulatory regime. While the implementation of the new tax code has been pushed back already due to public outcry, Boo-kyum has pledged to review the regulations “as there must not be any victims.”