FSS Study: 70% Crypto Exchanges in South Korea Fail to Refund Investors on Shutdown

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As a researcher with a background in finance and experience in investigating the cryptocurrency market, I find the situation in South Korea’s crypto exchange industry alarming. The recent report by The Korea Times revealing that seven out of ten failed exchanges did not return investors’ funds is a clear indication of the need for more robust regulatory frameworks to protect investors.

As a researcher conducting an analysis on the crypto exchange market in South Korea, I was startled to discover that approximately 70% of these platforms have not returned investors’ funds following their closure or suspension of operations, according to a report in The Korea Times last Friday.

As an analyst, I’d rephrase it as follows: Based on a collaborative investigation conducted by the Financial Supervisory Service (FSS) and the Korea Financial Intelligence Unit, it was uncovered that a significant number of digital asset platforms leave customers high and dry when these platforms shut down. Among the seven non-refunding exchanges, six failed to inform their clients in advance about their intentions to cease operations.

This lack of communication and preparedness make­s the situation worse. The FSS note­d:

“If that was the case, only a handful of employees were responsible for refunding customers’ money, resulting in significant inconvenience for those customers.”

As an analyst, I would put it this way: The insufficient reaction highlights the importance of implementing stricter regulatory measures in the cryptocurrency sector.

South Korean Growing Crypto Market

South Korea holds the third-largest position in the global cryptocurrency market. In the initial half of 2023, approximately 6 million Koreans, equating to over 10% of the country’s population, engaged in cryptocurrency trading through authorized exchanges. The extensive involvement of the populace underscores the importance of strong regulatory structures to safeguard investors.

Instead of focusing solely on well-known cryptocurrencies such as Bitcoin, many Korean traders opt for smaller, more volatile digital assets. This penchant for riskier investments increases the likelihood of exchange collapses and potential financial losses for these investors.

As a crypto investor, I understand the importance of robust regulations in our industry. To tackle the challenges we face, the Financial Services Commission (FSS) works hand in hand with other financial regulatory bodies to fortify rules concerning the shutdown of financial institutions. Personally, I’m dedicated to seeing the creation of appropriate guidelines that will further strengthen our efforts against illicit activities within the expanding digital asset market. The FSS remains steadfast in its commitment to this mission.

FSS Plans Stricter Compliance by July 2024

The Financial Services Sector (FSS) emphasizes that digital asset service providers are required to strictly adhere to the upcoming investor protection law for virtual assets, which is set to be enforced by July 2024. This law aims to enhance investor protection by imposing more stringent compliance requirements on cryptocurrency exchanges.

The Financial Services Authority (FSA) proposed relevant guidelines and remains committed to identifying and eliminating unlawful practices in the expanding digital asset sector.

Recent investigations by the Food and Drug Administration (FDA) have uncovered a substantial void in the existing regulatory framework, specifically with regard to safeguarding customer funds when an electronic trading platform ceases operations. Proposed regulations and guidelines aim to bridge this gap, but constant monitoring and enforcement are essential for effective implementation.

As a crypto investor, I’ve encountered this issue firsthand, which goes beyond the borders of South Korea. Sadly, several exchanges have crumbled in the global cryptocurrency market, leaving investors like myself high and dry with no clear path to recover our losses. The persistent problem of defunct exchanges failing to restore funds underscores the necessity for international regulatory collaboration and standards. We need a unified approach to protect investors and ensure the stability and trustworthiness of the crypto market.

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2024-06-07 14:00