Exchanges with know-your-customer (KYC) and anti-money laundering (AML) systems can be issued with virtual bank accounts, JongKu the Chairman of the Financial Services Commission (FSC) affirmed recently.
“If digital asset trading platforms have KYC and AML systems in place, there is no problem in issuing virtual bank accounts to exchanges,” Mr. Choi JongKu said.
Banks in South Korea have previously been under pressure from the government to stop providing services to cryptocurrency exchanges over fears of money laundering.
A number of banks ended their relationship with cryptocurrency exchanges except a few including Nonghyup Bank. Although it was among the last to hold out, Nonghyup did not renew its contract to offer virtual accounts to Bithumb, one of the largest exchanges in South Korea citing cybersecurity and customer data safety concerns.
It is also worth noting that Bithumb had suffered an attack in June in which $31 million was lost.
In the wake of this, Bithumb was forced to stop offering new accounts. It became the only exchange of the four major ones without a banking partner. This relationship, however, seems to have been revived at the end of August with Nonghyup Bank currently being Bithumb’s only partner.
In a bid to assure the authorities the South Korea Blockchain Association has been on an exercise to ensure that investor funds were insured. This initiative also includes some of the major cryptocurrency exchanges.
Additionally, exchanges are required to implement strict security measures and internal control systems to prevent loss or misuse of customer funds.
Bithumb stands to lose as customers might move to rival exchanges which have more banking relationships.
In South Korea, banks can receive deposits from customers on behalf of cryptocurrency exchanges. User accounts in cryptocurrency exchanges must, however, match verified identities.