Financial Authorities of Korea Plan to Start Regular Inspections of VASPs Including Businesses Other Than Exchanges

[Executive Summary]

• The FSC announced that it will expand its inspections this year to eliminate financial crimes involving virtual assets. The inspections will be conducted in three ways: comprehensive inspections, thematic inspections, and regular inspections. Cryptocurrency exchanges operating in the KRW market, such as Upbit, will be inspected first. Virtual asset exchanges also plan to strengthen joint review guidelines for delisting and prepare internal control standards.

On January 30^th, at the “Future of Digital Assets, New Industry, and Regulatory Innovation TF Research Report,”, the FSC announced that it will expand its regular inspections this year to eradicate financial crimes using digital assets. In addition to large exchanges such as Upbit, the FSC plans to conduct examinations throughout the entire industry, including operators such as virtual asset custody providers and wallet providers.

The inspections on virtual asset operators this year will be carried out in three ways: comprehensive inspections, theme inspections, and occasional inspections. First, the authorities plan to select inspection targets by comprehensively considering the number of users, transaction amounts, and whether they are virtual asset businesses of concern.

Accordingly, cryptocurrency exchanges operating in the KRW market, such as Upbit, will be inspected first. The financial authorities will check what kind of efforts are being made by the operators to prevent money laundering, select sectors with high money laundering risks, such as borrowed names and abnormal transactions, and check the management status of exchanges such as suspicious transaction reporting and customer identification obligations.

In response, digital asset exchanges also plan to strengthen joint review guidelines for delisting and prepare internal control standards within this year to minimize investor confusion. Additionally, the exchanges also plan to improve the current system where the market is biased toward certain operators without necessary information disclosed, unlike the securities market specific operators.

While it is anticipated that these steps will primarily focus on the internal operations of cryptocurrency platforms, checks will also be conducted on custody and wallet service providers. As a consequence of such checks, the Exchanges might decide to implement stricter due diligence and client information policies. Follow our blog posts to keep up with the most recent updates on developments and outcomes of the regular examinations.

Read More: The FSC of Korea Orders Virtual Asset Exchanges to Delist Security Tokens