Partners seem to be aligning for crypto exchanges

The country's major cryptocurrency exchanges — Bithumb, Coinone and Korbit — are likely to extend their partnerships with banks soon, which would give them a way to survive beyond Sept. 24.

"The green light could come as early as within this week, though no timeline has been fixed yet," a spokesperson from Bithumb said on phone Tuesday.

Crypto exchanges have until Sept. 24 to sign agreements with banks for issuing bank accounts in the actual name of the trader of cryptocurrencies for their clients. They need such accounts to keep operating under an amendment to the Act on Reporting and Using Specified Financial Transaction Information, a law intended to prevent money laundering.

While Bithumb and Coinone have been partnering with NongHyup Bank and Korbit with Shinhan Bank, the banks have not yet agreed to extend their deals beyond Sept. 24, saying the risks in partnering with exchanges are too high. Their existing deals last until Sept. 24.

"We haven't heard anything definite, but as we have finalized our assessment, the outcome could come out this week," a spokesperson from NongHyup Bank said.

A spokesperson from Shinhan Bank said nothing is for sure apart from the fact that a decision will be made before Sept. 17.

Under a guideline released by the Financial Supervisory Service on Monday, exchanges that fail to meet government requirements and need to close down after Sept. 24 must inform their users by Sept. 17 and suspend trading services by Sept. 24.

This means while the actual deadline falls on Sept. 24, exchanges' fates will essentially be determined a week before.

So far, Upbit, the country's largest crypto exchange by trading volume, is the only exchange that managed to extend its partnership with a local bank to open real-name accounts. Upbit is working with K bank.

Banks have been demanding exchanges come up with stronger preventive measures against money laundering. NongHyup Bank, for instance, has been demanding exchanges come up with ways to abide by the so-called travel rule, an anti-money laundering standard adopted by the Financial Action Task Force, 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, so that funds are traceable. While local exchanges must be ready for the rule by March 2022, banks were demanding earlier adoption of the rule to extend partnerships.

In response, Bithumb, Coinone and Korbit — three of four major crypto exchanges that have been operating in partnership with banks — set up a joint corporation at the end of last month aimed at establishing data monitoring and sharing systems that align with the travel rule.

Dunamu-operated Upbit was planning on joining the partnership in June. It dropped the plan at the end of July saying that the move could be seen as anti-competitive.

An Upbit spokesperson said last week that it will establish a system to abide by the travel rule on its own using a solution developed by Lambda256, a Dunamu company.

The Bithumb spokesperson said that while it is difficult to abide by the travel rule right now, the banks are likely to take into consideration its recent efforts to strengthen anti-money laundering capabilities.

There is a way, though, for exchanges to continue operating without signing contracts with banks. That is for the exchanges to only offer trading via cryptocurrencies, meaning the traders could purchase other crypto assets with bitcoin but not be able to cash out in Korean won.

Since that would be less attractive both for the exchange and its users, they will eventually have to find banks that will issue real-name accounts for their clients. However, suspending a won-based trading service for now could buy them time to operate and find partnerships.

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