The Financial Services Commission in South Korea is investigating 16 cryptocurrency exchanges for violating the Specific Financial Information Act. The FSC has alleged that these exchanges were operating as non-reporting entities.
Furthermore, they conducted they actively conducted sales activities on their websites through attractive offers without reporting to the South Korean government. On August 18, the Financial Intelligence Unit (FIU), working under FSC, names those 16 exchanges for violating the law.
This included some of the top exchanges operating in the country such as KuCoin, MEXC, Phemex, XT.com, Bitrue, ZB.com, Bitglobal, CoinW, CoinEX, AAX, ZoomEX, Poloniex, BTCEX, BTCC, DigiFinex, and Pionex.
The Special Act Rules In South Korea
According to the Special Act, any business entity associated with virtual assets, need to meet the regulatory requirements of the FIU. This includes getting the information security management system (ISMS) certification.
In the case of non-reporting, a business can face 5-year imprisonment or a fine not exceeding 50 million won. Furthermore, the business cannot operate in the crypto sector for another five years. These rules are applicable to both local as well as foreign businesses.
Besides, the FIU also has pre-set of rules for domestic sales activities. Last year in July 2021, the FIU requested all exchanges to report their activities. But now it comes to light that the above 16 operators of crypto exchanges have been operating illegally. Speaking to local news publication News 1, an FIU official said:
“Unreported virtual asset operators may be exposed to risks such as leakage of personal information and hacking because the information security management system (ISMS), which is a reporting requirement under the Special Act, is not properly equipped, and there is a risk of being misused as a money laundering route.”
Cracking Down On Credit Card Companies
During their investigation, the FIU found that these crypto exchange services also allowed crypto purchases using credit cards. However, as per the Special Act, this facility isn’t allowed for non-reported exchanges. FIU is now working with credit card providers to ensure that they don’t allow any crypto purchase transactions. The regulator has also instructed them to suspend transactions for non-reported operators.
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