Shinhan Bank to issue NFTs at 2023 Blockchain Grand Week in Seoul

While cryptocurrencies may be banned in China, crypto trading activity continues in some corners, nonetheless, sometimes through accessing overseas exchanges. With that, authorities recently uncovered a massive underground banking operation that exploited crypto trading platforms to evade local forex regulations.Photo by Manuel Joseph on Pexels$2.2 billion laundering operationOn Sunday, an account on popular Chinese social media platform WeChat run by China’s State Administration of Foreign Exchange (SAFE) published details of the $2.2 billion laundering operation bust. Xu Xiao, the Inspector at the Qingdao Branch of the State Administration of Foreign Exchange, revealed that the scheme involved underground banks who purchased virtual currencies and then sold the virtual currencies through overseas trading platforms to obtain the foreign currency they needed. This process, he explained, completes the conversion of yuan and foreign currencies, constituting the illegal act of buying and selling foreign exchange. Stringent capital controlsChina enforces stringent rules on money transfers outside the country. Citizens are limited to exchanging up to $50,000 in foreign currency and require a permit for transactions beyond that limit. Any transaction exceeding the limit without a permit is considered money laundering. During a recent investigation, authorities seized cryptocurrencies valued at approximately $28,000 in Tether, Litecoin and other digital currencies. However, the operation is estimated to have facilitated the movement of over $2.2 billion, involving more than a thousand bank accounts across 17 provinces and municipalities. Monetary control loopholesChina, once the largest cryptocurrency market, imposed a comprehensive ban on crypto exchanges in September 2017 and subsequently expanded its restrictions to include crypto mining and trading. Despite these measures, reports have surfaced about underground crypto exchange operations. Earlier this year, an investigative report by the Wall Street Journal found that global exchange Binance continues to do thriving business with Chinese customers. Global crypto exchanges are reportedly still onboarding Chinese clients indirectly. The South China Morning Post (SCMP) recently accused Binance of facilitating Chinese crypto trading accounts by falsely claiming they are from Taiwan. While mainland China adopts a hostile stance towards cryptocurrencies, the special administrative region of Hong Kong remains progressive in the sector. Hong Kong’s regulatory authorities have introduced specific rules for cryptocurrencies and are licensing crypto exchanges operating within the jurisdiction. Arthur Hayes, the co-founder of the BitMEX crypto derivatives platform, recently described Hong Kong as the gateway for mainland China to global capital markets. Hayes asserted that wealthy Chinese individuals all bank in Hong Kong and with that, they all have access to crypto exchanges and brokers. In Cambodia, it is understood that illicit Chinese-linked activities oftentimes implicate the use of U.S. dollar stablecoin Tether (USDT) to move funds in and out of China even though Tether is banned in Cambodia. The latest crackdown in China underscores the ongoing challenges faced by authorities in controlling crypto-related activities, highlighting the dynamic nature of such activity within and adjacent to mainland China. As regulatory scrutiny intensifies, the contrast between mainland China’s approach and Hong Kong’s more open stance toward cryptocurrencies becomes increasingly evident. 

Korea to Ban Virtual Asset Deposit Services from Next JulyDuring a recent criminal law seminar held at the Supreme Prosecutors’ Office, Park Min-woo, Director of the Capital Markets Bureau at the South Korean Financial Services Commission (FSC), underscored that starting next year, virtual asset service providers (VASPs) will no longer be permitted to offer deposit and management services for virtual assets. That’s according to a report by local crypto news outlet Digital Asset.This is seen as a response to the suspension of virtual asset deposits and withdrawals carried out by virtual asset yield platforms Haru Invest and Delio a few months ago.Photo by Mathew Schwartz on UnsplashLegal backgroundDirector Park referred to Article 7, Paragraph 2 of the Virtual Asset User Protection Act, clarifying that the intention behind this provision is to ensure that VASPs have the ability to fulfill asset withdrawal requests, even in the scenario where all their customers make such requests. This Act is scheduled to go into effect in July of next year, and Article 7 prohibits VASPs from entrusting customer assets to third parties.Deposit service providers receive cryptocurrency deposits and then distribute the resulting yields to their customers. In a bull market, these entities can manage yields on their own. However, in a flat or bear market, these asset managers may face challenges in paying yields unless they can generate profits by handing over customer assets to external custodians.Signs of giving upIn fact, centralized finance (CeFi) company HeyBit made an announcement last month, stating that it will discontinue its virtual asset deposit service starting from October 2. They cited this specific provision as the reason for their decision.Fraud chargesBoth Haru and Delio have been indicted by the Seoul Southern District Prosecutors’ Office on fraud charges.As an unregistered VASP, Haru suspended its deposit and withdrawal services on multiple occasions in June, causing substantial financial losses to numerous investors. This suspension was triggered by significant losses incurred at B&S Holdings, another unregistered entity to which Haru had entrusted virtual assets.Similarly, Delio, although registered, entrusted a considerable amount of virtual assets to Haru and Traum Info Tech but was unable to recover them.

South Korean financial regulators have decided, at least for the time being, to maintain the current policy requiring cryptocurrency exchanges to partner with only one bank, according to a report from the Seoul Economic Daily.Photo by POURIA 🦋 on UnsplashDominance and money laundering concernsA government official cited concerns that allowing multiple banking relationships could potentially strengthen market dominance by leading platforms and increase money laundering risks. Regulators plan to revisit the issue after monitoring new developments following upcoming regulations that will permit institutional participation in the crypto market. This decision runs counter to a recent proposal put forward by the People Power Party (PPP) ahead of the presidential election that seeks to eliminate the one-bank-per-exchange requirement. Bizwatch reported that while the crypto industry initially supported the removal of this restriction unanimously, opinions have recently diverged among market participants. Divided industryMajor exchanges offering Korean won-based trading are mostly against the potential policy change. Except for Upbit, the country's largest platform, competitors express concern that modifying the rules could weaken their existing banking relationships if more financial institutions choose to partner with the market leader. Conversely, crypto-only exchanges, which cannot offer Korean won trading services, generally favor eliminating banking restrictions. These platforms believe relaxed regulations could create more opportunities to establish banking partnerships. Under current rules, virtual asset service providers must secure real-name accounts from a local bank to offer Korean won trading, placing those without such accounts at a competitive disadvantage. Banks also want changeKorean commercial banks align with crypto-only exchanges in supporting the easing of banking regulations. Jung Jin-wan, CEO of key financial institution Woori Bank, recently called for allowing multiple banks to serve individual crypto exchanges. He argues that the current one-bank-per-exchange system not only undermines systemic stability but also limits customer choice. While an official from a crypto-to-fiat exchange acknowledged the need for eventual reform of the one-bank-per-exchange system to improve customer options and market development, they also pointed out that industry stakeholders hold different views depending on their position in the market. The official said that dominant platforms perceive minimal practical benefits from permitting multiple banking relationships.