South Korea’s Financial Authority Mandates Defunct Crypto Exchanges To Purchase Insurance

The cryptocurrency industry has been thrown into turmoil. The Financial Supervisory Service (FSS) said that closing a business does not mean a loss of business status and that exchanges must fulfill their obligations to protect their users. Under the Virtual Assets Act, coin market exchanges are required to purchase insurance with a minimum compensation limit of KRW 500 million or more, or to accumulate reserves, which can be a huge burden for exchanges that have closed down due to business difficulties.

Currently, several coin market exchanges, including Coinbit, Casherest, and Huobi Korea, have officially closed their businesses, but most of them have until the end of this year to maintain their status as a virtual asset businesses. The problem is that many of these exchanges are completely undercapitalized and cannot afford the annual insurance premiums of around KRW 50 million. Furthermore, there is no clear guidance on whether they need to continue to purchase insurance even if they have returned user deposits, adding to the confusion in the industry.

The Financial Supervisory Service is aware of this situation and plans to respond flexibly to individual cases where it is not beneficial to comply with legal obligations. However, this issue presents an important challenge of how to balance the regulation of the virtual asset industry with the protection of investors and will require continued communication and cooperation between the financial authorities and the industry.

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