Regulation
South Korea’s FSS Summons Top 5 Cryptocurrency Exchanges Over Deposit Fees
South Korea’s Financial Supervisory Service (FSS) has summoned five major local cryptocurrency exchanges for an emergency meeting.
The five South Korean Exchanges including Upbit, Bithumb, Coinone, Korbit, and Gopax are under investigation for recently increasing user fees for deposits. The FSS’s interference is aimed at regulating compliance with the new Virtual Asset User Protection Act, which requires that fees be reasonable and calculations made transparently.
This action was brought by Bithumb on July 23, 2024, when the exchange announced its intention to increase the user fee rate from 2.2% to 4.0% per annum. This decision by Bithumb was, however, reversed, but the announcement came in the context of a number of fee hikes on other exchanges raising the issue of unfair competition.
Risks associated with excessive price increases
The FSS expressed concern about the justification for fee increases, particularly the 4% proposed by Bithumb. According to Article 5 of the Regulation on the Supervision of the Virtual Asset Sector, fees charged on the use of the deposit must be reasonable and based on the company’s revenue in addition to the costs incurred. The industry regulator also stressed that there should be no concealment of the processes used to establish these fees.
At the meeting of July 24, 2024, the FSS asked the exchanges to provide more information on the deposit management process and the fee calculation process. The FSS wanted to re-evaluate these approaches and eliminate any ambiguities on the part of the exchanges regarding reasonable fees.
Wider regulatory change in South Korea’s cryptocurrency market
The issue of filing fees is one of several reforms underway in South Korea related to cryptocurrencies. The FSS has recently introduced a system for monitoring suspicious activities in trading, requiring exchanges to provide data on their transactions. This measure is now in line with the Virtual Asset User Protection Act, which aims to strengthen user and market protection.
Additionally, the Digital Asset Exchange Alliance (DAXA) is undertaking an in-depth analysis of over 1,300 digital assets to determine their compliance with the new legal framework. This analysis could impact a large number of altcoins, particularly those that are still struggling to meet the established standards.
The FSS has laid down general rules to detect manipulative trading, including high-frequency and large-size trading, atypical pricing and delayed execution of trades. Failure to comply with these guidelines is likely to result in heavy penalties and exchanges are therefore expected to adhere to them.
Moreover, these proposed measures suggest that South Korea is in a new phase of stricter regulation in the cryptocurrency market, with an emphasis on compliance and disclosure.