South Korea’s FSS Chief Urges Bank-Level Regulation for Crypto Exchanges
FSS Governor Lee Chan-jin told a National Assembly emergency hearing that cryptocurrency exchanges should be regulated at the same standards as banks. His statement followed an erroneous payment incident at Bithumb and reflects the FSS view that self-regulation has institutional limits. Lee cited the need for capital adequacy, consumer protection, operational resilience and regular audits—measures typical for traditional banks but largely absent or voluntary in crypto exchanges. The proposal could require stricter licensing, proof of reserves, enhanced AML/travel-rule compliance, segregation of client funds and mandatory audits. Analysts say bank-level rules would raise compliance costs, likely prompting consolidation among smaller platforms while improving investor protections. Legislative changes (amending laws such as the Electronic Financial Transactions Act and Specific Financial Information Act) are still required; the FSS may push phased implementation to limit market disruption. Market watchers note South Korea’s move could influence regulatory trends across Asia and beyond. For traders: expect potential higher compliance costs for exchanges, possible platform consolidation, improved custodial protections, and heightened regulatory scrutiny during the legislative process.
Bearish
Moving exchanges toward bank-level regulation increases operational and compliance costs for crypto platforms. Historically, tighter exchange regulation (or enforcement actions) tends to reduce liquidity and concentrate trading volume on larger, compliant venues—often causing short-term price weakness as market participants reposition and smaller exchanges curtail services. The Bithumb incident plus a clear FSS signal raises the probability of stricter licensing, mandatory reserves, audits and AML upgrades. In the short term, expect heightened volatility, potential withdrawal/withdrawal-fee changes, and reduced retail trading activity on smaller platforms. Over the medium-to-long term, outcomes are mixed: stronger custody and insurance frameworks improve investor confidence and could support institutional inflows, but higher barriers to entry may slow innovation and reduce the number of trading venues. Comparable past events: regulatory crackdowns in South Korea (2017–2018) and stricter exchange rules in other jurisdictions produced immediate market pullbacks and consolidation, followed by gradual stabilization once new rules and compliant infrastructure were in place. Traders should monitor legislative progress, exchange announcements on compliance costs/reserves, and liquidity shifts toward larger exchanges.