Dubai Regulator Issues Reprimand to OPNX Founders

In the first quarter of this year, South Korea witnessed a significant surge in cryptocurrency trading volume, with transactions worth $456 billion conducted in South Korean won on centralized crypto exchanges, according to data from Kaiko. This surge has propelled the South Korean won to the forefront as the most-used currency for crypto trading, surpassing the U.S. dollar during the same period. Photo by Sesinando on PexelsCrypto over stock marketThe country, amidst this soaring demand for cryptocurrencies, is preparing to implement regulations aimed at safeguarding investors. South Korea's cryptocurrency market, renowned for its activity, briefly outpaced the country's stock market during the recent crypto bull run in March.  The local market is predominantly dominated by five fully licensed exchanges, with Upbit leading the pack, accounting for over 80% of the market share on most days, as highlighted by Kaiko. Other major global exchanges like Crypto.com and Binance are also eyeing entry into the South Korean market, with Crypto.com launching its retail trading platform in the country on April 29 and Binance acquiring a significant stake in Gopax in 2023. Growing regulatory frameworkDespite regulatory efforts to fortify investor protection, including the enactment of the Virtual Asset User Protection Act in July 2023, South Korea continues to work on further regulatory frameworks. The legislation aims to curb illicit activities in the crypto market and mandates safeguards for user funds, including storing over 80% of deposits in cold storage and enrollment in insurance programs to mitigate potential security breaches. Additionally, efforts are underway to standardize crypto token issuance and enhance information disclosure for investors through the development of a second part of the User Protection Act.

UAE strengthens regulatory oversight of virtual asset service providersThe Central Bank of the United Arab Emirates (CBUAE) and other relevant authorities in the Middle Eastern country have issued new joint guidance for virtual asset service providers (VASPs) operating within the UAE.Photo by Thomas Drouault on UnsplashPushing back against unlicensed VASPsThese guidelines aim to prevent VASPs from operating without proper licenses in the jurisdiction, demonstrative of the country’s efforts in fighting financial crimes and maintaining the integrity of its financial system.The document outlines the penalties for VASPs operating in the UAE without a valid license. They will face civil and criminal sanctions, including financial penalties against the entity, its owners and senior managers. Moreover, the guidance cautions that licensed financial institutions (LFIs), designated non-financial businesses and professions (DNFBPs) and licensed VASPs that engage with unlicensed VASPs will be subject to law enforcement actions.The National Anti-Money Laundering and Combating Financing of Terrorism and Financing of Illegal Organizations Committee (NAMLCFTC) is the specific entity responsible for having issued the guidance in conjunction with the central bank.VASP ‘red flags’As part of those guidelines, a list of “red flags” for VASPs has been included. Through reliance on these indicators, it’s hoped that bad acting VASPs can be identified by consumers and other industry stakeholders. The document refers to red flags such as the lack of regulatory licensing, no physical presence in the UAE, pressure being applied by a platform to invest quickly and a lack of regulatory disclosure as items to look out for.Otherwise, the guidance encourages stakeholders to be suspicious of unsolicited contact being employed as a means of operation by a platform, the lack of a record of compliance, poor website and communications and the offer of unrealistic promises.Lastly, the document suggests that people should be observant of any illicit use of virtual currency, the use of fake wallets, engagement in terrorist financing and a lack of consumer protection as red flag items.The new guidance instructs all LFIs, DNFBPs and licensed VASPs to report transactions involving suspicious parties. The guidance also emphasizes that information related to unlicensed virtual asset activities can be reported through whistleblowing mechanisms.Exiting FATF ‘grey list’The release of these guidelines is part of an effort by the UAE to be removed from the Financial Action Task Force’s (FATF) “grey list.” The grey list indicates deficiencies in a country’s anti-money laundering (AML) and counter-terrorist financing (CTF) regimes.Improving control mechanisms relative to crypto has been a theme for several countries who are similarly looking to exit the FATF grey list. Last week, it emerged that Turkey is crafting new regulations governing crypto in an effort towards “grey list” removal. Earlier this year, Pakistan announced a renewed ban on cryptocurrency, as part of its efforts to remain off the grey list it had been listed on over an extended period.The UAE was placed on the FATF’s grey list in March 2022 due to AML and CTF deficiencies. However, the country made a commitment to work with the global watchdog to improve its regulatory frameworks in these areas.

South Korea: Crypto Exchange Execs Indicted on Manipulation ChargesA number of executives at Coinone, one of South Korea’s leading cryptocurrency exchanges, have been indicted on charges related to market manipulation.That’s according to a report published by South Korean news outlet, The JoongAng, on Monday. The complaint details no less than forty-six coins that are alleged to have been the subject of manipulation in some form. That represents one in four of the total number of coins that the exchange has enabled for trading on the platform.Photo by Burak The Weekender on PexelsFour executives indictedThe indictment lists four Coinone executives, Mr. Jeon, Mr. Kim, Mr. Ko, and Mr. Hwang. The four have been charged with employing illegal mechanisms to manipulate coin listings, resulting in the four executives profiting to the tune of 2.98 billion Korean Won, which amounts to $2.26 million dollars according to current fx exchange rates.The complaint specifies that these offenses were committed between December 2019 and November 2022. South Korean prosecutors further allege that prior to various projects obtaining a token listing on Coinone, company executives made them sign third-party market-making contracts. That in and of itself is not unusual.One of the key aspects of a new coin listing (and an ongoing listing for that matter), is the need to have sufficient liquidity in place to ensure that the coin can be traded without being susceptible to market manipulation. Low liquidity conditions open the door to bad actors moving the market relative to a particular token.Cross tradingThe indictment is far more specific in calling out illegal cross trading activity. It’s likely that these key Coinone employees would have been expecting such an indictment to land at their doors. Last week, it emerged that LUNA tokens associated with Terraform Labs’ failed Terra USD (TUSD) algorithmic stablecoin project, had been illegally cross traded on three South Korean crypto exchanges: Bithumb, GoPax and Coinone.Cross trading is the practice of trading an asset on an exchange without recording the transaction transparently on the exchange. Strictly speaking, the activity can be legitimate although most exchanges prohibit the practice as it can be used to affect market manipulation.A cross trade could be permitted in a scenario where the price is deemed to be competitive at the time that the trade takes place. While this can more easily be determined in conventional markets as the practice is covered by specific regulation, that’s not the case in most jurisdictions right now where digital asset trading is concerned. By extension, there’s a complete lack of transparency and a lack of reporting.As other market participants don’t have visibility of this type of trading activity, they are unaware as to whether a better price is available on the market or not. In an unregulated state, the practice undermines trust.In the case of Coinone, the executives enabled the practice in order to provide an illusion with regard to trading activity. That meant that trading volumes claimed were inaccurate, misleading ordinary traders and exchange users. Along with trading volume in these coins being artificially boosted, so too were token prices.In the indictment, prosecutors explicitly alleged that cross trading was being employed in an illegal manner:“This price manipulation causes misunderstandings about the trading volume and market price among general members of the exchange, and induces [service users] to participate in the coin transaction and buy the coin.”