3 crypto exchanges form company to combat money laundering

Bithumb, Coinone and Korbit announced Tuesday that they have established a corporation that will help them abide by the so-called travel rule, an anti-money laundering standard.

The travel rule was extended in 2019 to crypto exchanges by the Financial Action Task Force (FATF), a Paris-based international organization that sets standards to combat the illegal movement of funds. The travel rule calls for certain customer information to be shared by exchanges as digital assets are transferred from one to another.

For crypto exchanges and financial institutions, this means gathering names and account numbers of both senders and recipients of digital funds and exchanging that information as assets are transferred. Local exchanges must be ready for the rule by March 2022.

The three crypto exchanges agreed to jointly develop systems to meet the requirements by the FATF rule with the new joint venture.

The company is called COnnect Digital Exchanges (CODE) and was established with 900 million won ($776,000) of funding. The three exchanges each own one third of the shares and have equivalent voting rights.

CODE will be headed by Cha Myung-hoon, CEO of Coinone. A new CEO will be appointed every two years.

The joint venture is hoping to establish data monitoring and sharing systems that align with the travel rule as some banks have required exchanges have tougher standards on their readiness against money laundering in order to do business with them and their clients after Sept. 24.

Crypto exchanges have until Sept. 24 to sign agreements with banks for issuing real-name bank accounts, accounts in the name of the actual trader of cryptocurrencies, for clients of the exchanges. They need these accounts to keep operating under an amendment to the Act on Reporting and Using Specified Financial Transaction Information.

While NongHyup Bank is currently offering accounts for Bithumb and Coinone users, the bank has asked for the exchanges to speed up establishing systems to abide by the travel rule to extend the existing agreements beyond Sept. 24.

Upbit, the country's largest crypto exchange by trading volume, was planning on joining the partnership by signing a memorandum of understanding with other exchanges in June, however it dropped the plan at the end of July saying that the move could be seen as anti-competitive.

Dunamu-operated Upbit said it will establish a system to abide by the travel rule on its own using a solution developed by Lambda256, a Danamu company.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]