Major South Korean banks are advocating for a shift in the country’s cryptocurrency policy to allow for greater collaboration with multiple crypto exchanges. This proposed change, as reported by local outlet MT, was brought to light during a meeting organized by the Korea Federation of Banks with lawmakers from the ruling People Power Party.
Executives from five top banks, including Woori Bank CEO Jeong Jin-wan, expressed concerns about the current one-bank-per-exchange framework in South Korea. Jeong emphasized that this setup limits customer choice, strains the financial system, and hampers consumer flexibility and competition in the banking sector.
The existing regulation, introduced in 2018 to enhance anti-money laundering efforts in the crypto industry, requires exchanges to partner with a single bank and mandates real-name verification for users. However, critics now argue that this rule has become outdated and is hindering progress in the sector.
The bankers contend that the current policy restricts user access, stifles innovation, and increases operational risks for exchanges relying on a single banking partner. The exclusive exchange-bank relationships also raise concerns about systemic risks, as evidenced by the potential vulnerabilities associated with Upbit, the largest crypto exchange in South Korea.
A South Korean lawmaker recently highlighted the risks posed by Upbit’s heavy reliance on K Bank, its sole banking partner. With 20% of K Bank’s deposits coming from Upbit, a disruption in the exchange’s operations could potentially trigger a liquidity crisis at the bank.
If the government revises the policy to allow exchanges to partner with multiple banks, it could lead to improved services, better risk management, and increased investment opportunities for both retail and institutional investors.
Overall, the push for policy change by South Korean banks reflects a growing recognition of the need for a more flexible and resilient regulatory framework that fosters innovation and protects the interests of all stakeholders in the cryptocurrency ecosystem.