FTC slams exchanges for unfair contracts

Korea’s antitrust agency gave the country’s cryptocurrency exchanges, including Bithumb and Korbit, 60 days to fix contract terms that it said are illegal and unfair to investors.

This is the first regulatory action that the Fair Trade Commission has taken against cryptocurrency exchanges.

The FTC said Wednesday that it investigated 12 cryptocurrency exchange operators and found 14 contract terms that it saw as unfair to users.

One of the regulator’s biggest complaints was with exchanges’ policy of converting users’ cryptocurrencies to cash if they haven’t logged in to their accounts in six months. Instead of converting the cryptocurrencies at the current market rate, they convert it at the rate the user originally purchased the cryptocurrency at.

The FTC said that the cryptocurrency is still the owner’s property, so exchanges have no right to convert it to cash. The regulator also ordered the exchanges to change their compensation policies. Some exchanges compensate users for losses with cryptocurrencies or points for the exchanges.

Under Korean civil law, all compensation payments on losses have to be made with legal tender. Other means, such as cryptocurrency payments, are valid only when both parties agree. The exchanges’ one-sided compensation terms are not valid, according to the FTC.

The FTC demanded that exchanges offer users the choice of compensation in cryptocurrency or fiat money.

It also turned out that many of the cryptocurrency exchange operators currently protect themselves broadly against accountability in the case of security breaches.

They take no accountability for external attacks, such as hacking, that could expose user’s information, or for denial-of-service attacks or losses caused by problems with servers and communication services.

The FTC said the exchange operators have the responsibility to create security systems that ensure users are secure from outside attacks and service outages, and that the companies have to compensate users for losses caused by hacks and other problems.

The FTC ordered the companies to make changes to how they distribute product information and advertisements to users. Currently, the only way for users to stop advertisements from being sent is closing their accounts.

The FTC gave cryptocurrency exchanges 60 days to implement the changes. The companies will likely change their terms by early in June.

However, the FTC said while the improvement in the terms will increase protections for investors, the decision to invest in cryptocurrency is risky and is up to buyers’ own discretion.

“Separate to the unfair terms, investors have to carefully decide whether to invest in cryptocurrency, and they could suffer actual losses due to price volatility,” said Bae Hyun-jeong, an official at the FTC.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]