Six South Korean banks are under investigation by local regulators over the virtual accounts they offer cryptocurrency exchanges. 

Inspections will take place by the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) to ensure the banks are correctly implementing anti-money laundering regulations.

Virtual Accounts

The banks, which include Woori Bank, Kookmin Bank and Shinhan Bank, all provide virtual accounts to crypto exchanges. Figures show that 111 accounts are registered with South Korean exchanges, with these accounts potentially offering millions of virtual accounts. FSC Chair Choi Jong-ku said that the inspections were to provide guidance to the banks on how to manage these virtual accounts, not to identify rule-breaking.  

In a press conference Choi Jong-ku said that virtual currency was “currently unable to function as a means of payment” and that it was “used for illegal purposes like money laundering, scams and fraudulent investor operations.

Hacking Honey Pots

The FSC is also concerned that the popularity of cryptocurrencies has led to “hacking problems at the institutions that handle cryptocurrency”, an apparent reference to the Youbit exchange which filed for bankruptcy last month after being hacked twice in 2017. Due to the premium paid for cryptocurrency in South Korea its exchanges are particularly attractive “honey pots” for hackers.

“Bitcoin Zombies”  

Though South Koreans are among the world’s most enthusiastic cryptocurrency traders, their government is considerably less keen. Last month they held an emergency meeting to combat “Bitcoin zombies”, traders locked in to Bitcoin’s price to the exclusion of all else, and Prime minister Lee Nak-yeon has raised warnings about cryptocurrencies’ potential to corrupt South Korean youth.

Looking to tighten up regulations the government has introduced new legislation restricting exchange operations. Investors will only be allowed one account, which will be linked to their name. They will be liable to capital gain taxation on any profits.

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