Regulation
South Korean Crypto Exchanges Under Investigation Over Fee Hikes After New Regulation
South Korea’s Financial Supervisory Service (FSS) has summoned five major cryptocurrency exchanges in the wake of newly implemented cryptocurrency laws, signaling increased scrutiny of industry practices. The move comes in the wake of aggressive fee hikes by major market players, raising concerns about fair competition and user protection.
South Korea’s Cryptocurrency Exchanges Under Scrutiny
South Korea’s Financial Supervisory Service (FSS) has summoned the country’s five major banks cryptocurrency exchanges which are Upbit, Bithumb, Coinone, Korbit, and Gopax to address the ongoing controversy over deposit usage fees. This urgent meeting, held on July 24, 2024, comes in the wake of intensifying competition among exchanges to increase their fees following the implementation of the Virtual Asset User Protection Act.
The FSS intervention was triggered by Bithumb’s announcement on July 23 that it would increase its usage fee from 2.2% to 4.0% annually, a decision that was later retracted. This move came after a series of fee increases by various exchanges since the Act’s implementation on July 19-20, with Upbit increasing its fee from 1.3% to 2.1% and Korbit following suit with an increase to 2.5%.
Financial regulators deemed Bithumb’s 4% rate potentially unreasonable, citing Article 5 of the Virtual Asset Industry Supervision Regulations. This article states that deposit usage fees must be “reasonably calculated” based on operating income and expenses incurred.
During the meeting, the FSS aimed to review the calculation methods for deposit usage fees and address disagreements among exchanges regarding reasonable fee levels. South Korean cryptocurrency exchanges were required to provide detailed information on their deposit management practices and fee calculation methods.
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Broader regulatory landscape and future implications
The controversy over deposit fees is part of a broader regulatory shift in South Korea’s cryptocurrency market. The FSS previously announced plans for a system to monitor unusual cryptocurrency trading activity, requiring exchanges to provide detailed data. This is in line with the recently implemented Virtual Asset User Protection Act.
At the same time, the Digital Asset Exchange Alliance (DAXA) has initiated a comprehensive review of over 1,300 digital goods to ensure compliance with the new legislation. This review, while not a mass delisting effort, could pose challenges for altcoins struggling to meet regulatory standards.
The FSS guidelines have established clear parameters to identify suspicious trading activities, including abnormal volumes and price ranges, large transactions, and slow executions. Non-compliance could result in severe penalties, signaling a new era of rigorous supervision in South Korea Encrypt market.
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