South Korea's FSC has ordered banks to step up monitoring of cryptocurrency exchanges for high-risk customers

South Korea, which is known for its strict regulation of cryptocurrencies, is expected to tighten its regulatory grip. According to local newspaper The Korea Times, the Financial Supervisory Commission (FSC) has ordered banks to step up financial transaction monitoring. Banks must classify cryptocurrency exchanges as high-risk customers and strengthen financial transaction monitoring and user identity verification for such users.

added that the FSC ordered banks to refuse service to customers who could not comply with the authentication process. Banks are also required to report suspicious transactions to the Korea Financial Intelligence Service (KoFIU).

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regulatory guidelines are believed to be aimed at the 60 or so cryptocurrencies operating in South Korea that are not licensed by the FSC. Future cryptocurrency exchanges will have to submit license applications by September 24, and the intelligence community will conduct a three-month review of their trading activities after the application is made. The

report said only four out of about 60 exchanges in South Korea have real-name accounts that use bank clearing. In addition, the regulator plans to close all accounts created using other people or forged identities next month. The FSC said the new regulatory guidance will ensure that cryptocurrency investors' money is protected in the event of an exchange failure. Notably, the Korea Times also noted that more than 90 percent of cryptocurrency investments in South Korea are in competing currencies, which have long been criticized for their lack of credibility and high risk of loss. South Korean Regulatory Response Banks are also seeking ways to limit their regulatory responsibilities in response to the government's ban, lest they get caught up in crypto financial crimes. The Korea Federation of Banks has planned to lead the talks and some commercial lenders will also participate in the discussions. The

talks reflect concerns in the financial community that under the FSC's new regulatory regime, banks could be held jointly and severally liable for financial crimes committed on these exchanges if investors say they trust them. The report also cited industry sources' views on the regulatory measure.

"Banks are essentially forced to take on the responsibility of opening real-name accounts. It therefore makes sense that there should be some immunity for undertaking such a dangerous and costly mission." In fact, South Korea's Central Bank Governor Lee Ju Yeol warned late last month that highly leveraged cryptocurrency trading threatens the country's banking system, promising to monitor cryptocurrency trading records in the country's financial system and even consider tightening related loan applications.