South Korea’s FSC Looks to Rein In Cryptocurrency With Cross Trading Ban
Crypto regulation is gaining traction by the day, and the latest is in the Asian nation South Korea.
‘Bicycling’ Creates ‘Conflict Of Interest’
The top regulatory body of the South Korean financial market, the Financial Services Commission, is bringing to an end the practice of ‘bicycling' by crypto exchange operators, per reports from a local news outlet.
According to the South Korean agency, this practice among Bitcoin exchanges in the country brings about a “conflict in interest.”
The term, which is closely related to a cross trade, allows an investor to both buy and sell the same security without recording it on the order book of the exchange. Although it is sometimes permitted on some occasions, the practice is generally frowned at.
The rule would see crypto exchanges will be no longer able to convert fees they receive in cryptocurrencies to the local Korean Won, thereby taking away a major source of revenue.
The FSC has said that this is to make sure that crypto exchanges do not manipulate prices.
Crypto operators have labeled the government’s position as aggressive to the nascent crypto space noting that this would force them to offer zero-commission crypto trades in the light of the changes.
However, the government is holding firm in its resolve, pointedly telling crypto exchanges to find a solution themselves. Providing details on why it was banning cross trading in the Asian country, the FSC said that large shareholders and business operators have more inside information than general investors, potentially making them a beneficiary in this practice.
Pointing out the effect of the rule on crypto businesses in the country, an industry official noted that since crypto fees can no longer be converted to the won, exchanges will have no choice but to sell them amongst themselves.
The official also pointed to the possibility of crypto exchanges creating an entirely different business organization catering to this need. However, stringent anti-money laundering practices will make this approach impossible to operate.
Seoul Set To Review Crypto Hacks
Aside from revenue stifling, crypto exchanges have also called the government's attention to the challenges they will face in remitting their taxes. According to them, the new rule will make it difficult for them to pay their taxes.
Crypto exchanges in South Korea are billed withholding taxes, and with the new ban, their tax obligations can no longer be remitted in cryptocurrencies, noted an anonymous contributor.
To find a way around this, crypto exchanges will have to depend on custodial institutions to get a collateralized loan to run their businesses.
The FSC is also planning to look into issues surrounding crypto exchange hacks for the past five years, further leading to a wider regulation of the nascent space.