South Korea Tightens Crypto Exchange Screening

The South Korean government is tightening oversight of cryptocurrency exchanges, expanding screening requirements to encompass major shareholders, significant economic crimes, and social creditworthiness. This revised Act on Reporting and Using Specified Financial Transaction Information, set to become effective on August 20, 2023, introduces a fit-and-proper screening process for the largest shareholder, major shareholders holding 10% or more of shares, and related persons of the largest shareholder.

If the largest shareholder is a corporation, its largest shareholder and representative are also subject to scrutiny.

The financial soundness requirements for these exchanges are being made more stringent, mandating a debt-to-equity ratio of 200% or below, while excluding user deposits and unsettled balances from total liabilities. Compliance systems will shift from document-based verification to on-site inspections to verify organizational structures, personnel, and IT infrastructure.

The change-of-report procedure will also shift from post-facto reporting to prior reporting, requiring operators to notify 30 days before a change takes effect.

Operators must now maintain at least 4 AML staff members and appoint a compliance officer, and procure Information Security Management System (ISMS) certification while implementing intrusion prevention systems and data backup systems. Servers processing personal credit information must be located domestically. Certain staff members may hold concurrent positions in smaller operators.

Re-registration is required by November 20, 2023, with some requirements granted a one-year grace period, but failure to comply will lead to ex-officio cancellation. Non-custodial wallet providers may be exempt if they do not hold exclusive control over private keys.