According to a new report, South Korea is considering whether or not to do away with the age-old policy of allowing only one bank to work with crypto exchanges, a move that could have a profound impact on the nation’s digital asset industry. The potential change indicates that regulators are starting to realize that the current regulations may not be suitable for an industry that is growing so fast.
At
present, every South Korean exchange must join hands with one local bank in
order to offer real-name accounts to customers. Although this measure was
implemented to fortify the fight against money laundering as well as enhance consumer protection, it has been said to stifle competition,
deny access to many players and create a situation where power is in the hands
of a few major banks and exchange platforms.
The
authorities are now said to be considering whether, by permitting the exchanges
to have more than one banking partner, they could enhance transparency,
resilience and equity within the crypto ecosystem.
Reasons
for Reconsidering the One-Bank Rule
For many
years now, the one-bank policy has created a bottleneck. Compliance attempts
are immaterial since smaller and medium exchanges find it difficult to secure banking partners who effectively lock them out of the market. On the other
hand, financial institutions have refrained from taking up cryptocurrency
clients due to regulatory risks, thereby creating what can be termed a de
facto monopoly.
Regulators
are becoming increasingly worried that this rule might stifle innovation and
competition rather than enhance security. It is believed by some people working
in the sector that having many banking relationships could help in reducing
systemic risk because if one bank decides to pull out its support, then all
exchanges would be affected.
A Seoul-based
fintech analyst commented, “This concerns the stability and equality of
markets.” “If access is controlled by one bank, then once it withdraws its
support, everything will collapse.”
Impact of
Changing the Rule on the Market
In case
there is any relaxation or elimination of the one-bank rule, it would enable
crypto exchanges to spread their wings as far as banking connections are
concerned, hence making fiat entry and exit points more dependable for users. As
a result, there may be increased trading activities with high liquidity levels
experienced and consumers having better options at hand.
For banks,
this change may reduce their exposure to individual risks associated with
cryptocurrencies while still giving them an opportunity to participate in
digital assets. To regulators, it provides a means through which they can keep
watch over things without unnaturally constraining the market setup.
This move
also goes hand in hand with South Korea’s wider efforts towards updating
financial regulation amidst increasing institutional adoption of
cryptocurrencies worldwide.
Nevertheless,
there is still some level of caution.
Although
things seem to be moving forward, officials are said to be proceeding with
caution. Any changes made will need strict compliance with AML, KYC and
consumer protection laws just like before. The authorities are keen on
preventing any past disturbances in the market from happening again, while at
the same time ensuring that they do not create a blind spot for themselves in
the financial system with regard to cryptocurrencies.