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Strengthened KYC Spurs More Suspicious Transaction Reports from Korean Crypto ExchangesIn South Korea this year, there has been a significant surge in the number of suspicious transaction reports (STRs) related to cryptocurrencies, according to local news agency Yonhap.This increase is primarily attributed to cryptocurrency exchanges fortifying their Know Your Customer (KYC) procedures. This proactive response follows the controversy surrounding lawmaker Kim Nam-kuk’s significant virtual asset holdings, which were unveiled in May. His scandal came to light when a substantial amount of WEMIX tokens, valued in billions of Korean won, were transferred from the Bithumb exchange to the Upbit exchange. Upbit, deeming it a suspicious transaction, promptly reported the matter to the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC).Photo by ron dyar on UnsplashGrowing number of suspicious transaction reportsAs the scandal continued to gain traction, the political realm reached a consensus to conduct investigations into the cryptocurrency holdings of all lawmakers. Additionally, the National Human Rights Commission of Korea initiated the tracking of all lawmakers’ cryptocurrency holdings last month, a process set to span 90 days.Data received by lawmaker Yoon Young-deok on October 30 from the FIU reveals that the number of STRs originating from virtual asset service providers (VASPs) has reached 11,646 in the first nine months of this year. This figure has already exceeded last year’s total of 10,797 STRs.Under the current Act on Reporting and Using Specified Financial Transaction Information, commonly referred to as the Financial Transaction Reporting Act, VASPs are mandated to report to the FIU if they have reasonable grounds to suspect that a customer’s financial transactions are connected to illicit property, money laundering, or terrorist financing. The Act has been in full effect since October 2021.In 2021, a total of 199 reports were submitted under this Act. The number of reports surged to over 10,000 the following year, and in the current year, it continues to grow at an even faster rate. The FIU reviews and analyzes these STRs in accordance with Article 10 of the Financial Transaction Reporting Act. It forwards the relevant information to law enforcement agencies only when it is deemed necessary for the investigation of a specific criminal case.Enhanced but varied approaches by exchangesCrypto exchanges have bolstered their customer verification requirements, especially for customers deemed to have a high risk of involvement in money laundering, in accordance with the Financial Transaction Reporting Act. This entails the need for additional scrutiny of the source of funds and the purpose behind transactions. Notably, if customer verification appears suspicious, exchanges are mandated to confirm the authenticity of the information using reliable documents.However, it’s important to note that the enforcement decree accompanying this Act grants exchanges the flexibility to verify documents based on their own business guidelines. This autonomy has been provided to assist exchanges in effectively mitigating money laundering risks by taking into account their individual business rights and characteristics.For instance, Upbit, South Korea’s largest cryptocurrency exchange, has implemented a fraud detection system (FDS) powered by artificial intelligence to continuously monitor and identify fraudulent transactions. This initiative has earned Upbit recognition from the FIU as an outstanding organization for reporting suspicious transactions during the first half of this year.On the contrary, Bithumb has devised and applies internal guidelines dedicated to anti-money laundering (AML) measures. The exchange has instituted a streamlined customer verification process for customers who are assessed as having a low likelihood of being engaged in money laundering activities. However, this simplified process is not extended to individuals from countries that have not adopted the recommendations of the Financial Action Task Force (FATF).Korbit monitors information related to customer verification through a dedicated department. It declines transactions for customers who have not undergone sufficient verification and validation procedures.Coinone’s AML department examines customer transactions comprehensively. It maintains ongoing reviews of customer information, business operations, risk assessments, and the source of funds. If any of these aspects are found to be suspicious or inadequate, the AML department proceeds with additional customer verification, including the disclosure of the source of funds.Some raise concerns about the inconsistency in customer verification standards for AML and STRs across different exchanges. When one exchange flags a transaction as suspicious, another might see it as routine. Such discrepancies highlight the need for uniform guidelines. Addressing this, the Digital Asset eXchange Association (DAXA), consisting of Korea’s five leading currency exchanges — Upbit, Bithumb, Coinone, Korbit, and Gopax — has set up an AML division to devise standardized rules for STRs.

Korean regulator monitors non-listed token amidst peer-to-peer trading surgeThe South Korean financial regulator is closely monitoring BTCMobick, a non-listed token issued by crypto influencer Oh Tae-min, who is known for authoring books like “The Great Bitcoin” and “Bitcoin and the Geopolitics of the Dollar.” The Financial Services Commission (FSC) is cautioning local crypto exchanges regarding the potential for price manipulation should the token be listed.Photo by Daniel Bernard on UnsplashBTCMobick TokenThe BTCMobick token is reportedly being traded peer-to-peer at around KRW 300,000, which is approximately equivalent to $230, in chat rooms of messaging apps like KakaoTalk outside of cryptocurrency exchanges. The token has gained enough traction to spur the emergence of dedicated apps that facilitate these peer-to-peer trades, charging fees for their services. Based on the size of the chat rooms and apps involved, it is estimated that approximately 3,000 participants are trading the token, according to a report by local news website Etoday.As per another coverage by the same outlet, the Virtual Asset Inspection Division of the Financial Intelligence Unit (FIU), which operates under the FSC, has inquired with local crypto exchanges on two occasions — once in September and again this week — about whether they have listed or are planning to list the BTCMobick token. It’s rare for the financial authority to specifically target a particular token when making inquiries with crypto trading platforms.Potential price manipulationAn FIU official explained the rationale behind the agency’s inquiry into crypto exchanges. The official stated that the probe aimed to caution the exchanges about potential price manipulation of the BTCMobick token. The concern is that many crypto users might suffer losses if such a token, which has been experiencing a continual rise in price outside of trading platforms, were to be listed. Currently, legal penalties for cryptocurrency price manipulation fall under the Virtual Asset User Protection Act, which will not be enforced until July 2024. This indicates a regulatory gap in the immediate term.Hwang Suk-jin, a professor at Dongguk University’s Graduate School of International Affairs and Information Security, pointed out that while giving out privately generated tokens to friends or acquaintances doesn’t raise any legal issues, the situation changes once these tokens are listed for trading on exchanges and distributed more broadly in the market. In such scenarios, these tokens can become a source of legal disputes, he explained.Amidst these developments, there are circulating rumors suggesting that BTCMobick is on the verge of being listed on exchanges. An industry insider has mentioned that there are brokers actively spreading these rumors, indicating that the token might soon become publicly tradable.Oh Tae-min’s denial of rumorsMeanwhile, Oh Tae-min, the creator of BTCMobick who has been distributing his token for free, states that the token is part of an experiment intended to mimic the early stages of Bitcoin. However, critics are concerned that the personally issued token has no practical utility. Addressing the circulating rumors about the token’s potential listing on exchanges, Oh asserts that these rumors are baseless and false. He further warns that any brokers spreading such rumors are likely engaging in fraudulent activities.

HashKey on-boards market makers to boost liquidityHashKey, a licensed crypto exchange in Hong Kong, has unveiled plans to onboard individual and enterprise market makers to enhance liquidity on its platform.Photo by engin akyurt on UnsplashMarket maker programIn an announcement on Tuesday, the exchange disclosed that interested parties, whether individuals or entities, can apply to become market makers on HashKey. To qualify, applicants need to engage in cryptocurrency trading worth a minimum of $5 million per month on the exchange.The exchange outlined that the program aimed to “recognize and incentivize users actively contributing to the liquidity” of the platform.Upon submitting their business plans for review, successful applicants will be invited to enter into a contractual agreement with the exchange’s due diligence team, commencing trading activities from Dec. 28 onwards when the program goes live.Commission free tradingThe exchange aims to encourage liquidity providers by offering a commission ranging between 0.005% and 0.015% of the transaction value, determined by monthly rankings or trading volumes, falling within a tiered structure set out within the program. Market makers demonstrating a trading volume of at least $100 million per month stand to enjoy the highest tier of commission revenue. Notably, all market makers will be exempt from commission fees on their trades.Market makers who participate via the program will be on trial for an initial two-month period. Those who are participating in market maker programs on other platforms currently will be able to avail of equivalent trial fee rates through the HashKey exchange.Service expansion trendThe move by HashKey follows a broader trend in Hong Kong, where regulated exchanges have been expanding their services and forming strategic partnerships since the issuance of the first licenses in August. In a recent development, OSL, another Hong Kong licensed exchange, collaborated with Interactive Brokers on November 28, enabling Hong Kong clients to buy Bitcoin through Interactive Brokers’ investment accounts.Additionally, on November 30, OSL welcomed Victory Securities for crypto trading services on its platform. That move came about following Victory’s acquisition of a retail crypto trading license some days beforehand. Notably, OSL received a $90 million investment from blockchain entity BGX in November.While HashKey has been extending its altcoin offerings, exclusively available to accredited investors meeting a $1 million portfolio requirement, the exchange has been proactive in enhancing user security. On Nov. 16, the platform introduced comprehensive insurance coverage for users’ and enterprise assets stored within its digital wallets in collaboration with fintech firm OneDegree.Earlier this week, it emerged that the platform had experienced an unprecedented surge in daily trading volumes. The surge had been attributed to a token rewards program that the exchange is currently running, that offers the distribution of HSK tokens or EcoPoints.As HashKey opens its doors to market makers, the move is poised to contribute to increased liquidity on the exchange, aligning with the broader trend of Hong Kong’s regulated crypto exchanges expanding their offerings and forming strategic partnerships.