South Korea’s FSS Summons Top 5 Crypto Exchanges Over Deposit Fees
South Korea’s Financial Supervisory Service (FSS) has summoned five leading local cryptocurrency exchanges for an emergency meeting.
The five South Korean exchanges, including Upbit, Bithumb, Coinone, Korbit, and Gopax, are under investigation for increasing the deposit usage fees recently. FSS’s interference is to regulate adherence to the newly enacted Virtual Asset User Protection Act, which requires that fees have to be reasonable and that the calculations being made have to be done in a transparent manner.
This action was brought by Bithumb on July 23, 2024 when the exchange declared its plan to increase the usage fee rate from 2.2% to 4.0% per annum. This move by Bithumb was however reversed but the announcement came at the backdrop of a number of fee hikes in other exchanges raising the question of unfair competition.
Risks Related to Excessive Fee Hikes
The FSS had concerns over the justification of the fee increases, especially focusing on the 4% proposed by Bithumb. According to Article 5 of the Virtual Asset Industry Supervision Regulations, the fees that are charged on the usage of deposit should be reasonable and based on the revenue of the business besides the incurred costs. The body that regulates the industry has also stressed that there should be no concealment of the processes that are used to come up with these charges.
At the meeting on July 24, 2024, the FSS asked the exchanges to present more information about the process of managing deposits and the fee calculation process. The FSS wanted to reassess these approaches and eliminate all ambiguities on the part of the exchanges as to what rates are reasonable.
Broader Regulatory Shift in South Korea’s Crypto Market
The deposit fee issue is one of the many reforms going on in South Korea in relation to cryptocurrencies. The FSS has recently implemented a system for tracking suspicious activities in trading; therefore, exchanges are required to provide data on their transactions. This is now in line with the Virtual Asset User Protection Act that has been set to strengthen user protection and the market.
Furthermore, the Digital Asset Exchange Alliance (DAXA) is undertaking an extensive analysis of over 1,300 digital assets with a view of determining their compliance to the new legal framework. This review may have implications to a vast number of altcoins especially those that are still finding it difficult to meet the set standards.
The FSS has provided general rules for detecting manipulative trades, including high frequency and large size, atypical prices, and delayed execution of trades. Failure to observe these guidelines is likely to attract severe penalties, and hence, the exchanges are expected to stick to them.
Moreover, these measures put forward suggest that South Korea is in a new phase of tougher regulation in the cryptocurrency market, stressing the compliance and disclosure.
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