In consequence of new regulatory requirements more than half of South Korea's cryptocurrency exchanges are to be shut down today - on the 24th of September - due to non-compliance, lack of legitimate KYC processes being one of the main reasons. Considering all the compliance solutions available, the aftermath is mind-boggling.
KYC fails are remarkably commonplace
Lately many news websites report on what's unfolding in the cryptocurrency space as many of South Korea’s crypto exchanges are set to be shut down due to non-compliance with new regulatory requirements. But regulated companies that fail in KYC compliance is by no means a phenomenon unique to the South Korean crypto sector. During the last two years even reputable major banks all over the world have faced hefty fines for not complying with KYC/AML regulations. There are valuable lessons to be learned from the widespread negligence being exposed virtually every time new legislation call for companies to adapt processes and make changes to accommodate regulated customer onboarding, due diligence and monitoring.
A South Korean cautionary tale for KYC wisdom
The government regulatory authority, of South Korea, The Financial Services Commission (FSC), has implemented new regulatory requirements affecting the country's crypto sector. To meet the new requirements all crypto service providers must establish expanded AML/KYC procedures which includes customer due diligence and monitoring in order to spot and report suspicious transactions. In consequence, the technical conditions for the exchange of customers’ personal data with transaction counterparties also need to be in place. Crypto exchanges are now obliged to partner with banks and offer customers real-name verification deposit and withdrawal accounts, otherwise they're not authorized to trade in Korean won (KRW). Also, in order to be allowed to continue operations after September 24, having an ISMIS certificate (Information Security Management System) issued by the Korea Internet & Security Agency (KISA) is mandatory for all crypto service providers.
In South Korea there are an estimated 300 companies operating in the cryptocurrency space with trading, wallets, investing and so on. Today, on the 24th of September the consequences of not complying with the new regulatory requirements comes to effect with the complete shutdown of nearly 40 companies operating crypto exchanges. But are more compliance issues within the South Korean crypto sector expected further on down the road? Highly likely. Regardless of what country any sort of company operates within, at this point what they should have learned is this: In any industry with a circulation of some sort of liquid assets the probability of change is always imminent. Whether it's legislative changes or a society lockdown due to a sudden pandemic, adapting to changes need to be an omnipresent quality within a company's business model.
The foundation of perpetual compliance
If headlines display companies that fail miserably when faced with regulatory changes, there is a lesson to be learned. Make sure having an adaptable, agile and flexible process for KYC compliance today to avoid being the subject of negative headlines tomorrow. Being adaptive to changes applies not least to businesses within or amalgamated with digital financial services. Having automated KYC systems should constitute a core component of their business model to ensure following AML legislation. But they also need to have systems that simultaneously are flexible enough to accommodate the ever-changing and evolving regulatory requirements both globally and locally.