Upbit, Bithumb and Other Top 4 Cryptocurrency Exchanges Face Attention on Real-Name Account Renewal Decisions

Approaching Renewal Time, Major Banks "Currently Under Review"
Clear Advantages in Fees and Customer Acquisition
AML Obligations Remain a Key Variable

[Asia Economy Reporter Jin-ho Kim] The renewal of real-name account contracts between the four major domestic cryptocurrency exchanges?Upbit, Bithumb, Coinone, and Korbit?and major commercial banks is approaching. According to the enforcement of the Act on Reporting and Using Specified Financial Transaction Information (the Specified Financial Transactions Act), exchanges that fail to obtain real-name accounts by the end of September will effectively be expelled from the market, drawing attention to whether these renewals will be successful.

According to financial sources on the 19th, major commercial banks are currently deliberating on whether to renew contracts with the four major cryptocurrency exchanges as their agreements near expiration. Bithumb and Coinone have partnerships with NH Nonghyup Bank, Korbit with Shinhan Bank, and Upbit, the largest in scale, has a real-name account partnership with K Bank.

Within the industry, it is expected that the renewal of real-name account partnerships for these four major exchanges will proceed smoothly. Unlike smaller exchanges, these exchanges obtained the Information Security Management System (ISMS) certification early and have relatively stable operating systems. A bank official involved in the real-name account partnership said, "We are currently conducting evaluations for the renewal decision," adding, "If there are no particular issues, we understand that the partnership will be extended."

From the banks' perspective, the massive fee income generated from the cryptocurrency boom that has continued since the end of last year is a positive factor. The total cryptocurrency deposit and withdrawal amount for the first quarter (January to March) of this year at the three banks?K Bank, Shinhan Bank, and Nonghyup Bank?was 64.2 trillion KRW. Accordingly, the fee income for the three banks in the first quarter reached 6.8 billion KRW.

In particular, K Bank is reported to have the highest likelihood of contract renewal due to its explosive growth through its partnership with Upbit. As of the end of March, K Bank had 3.91 million customers, an increase of 1.72 million from the end of last year. This customer acquisition exceeds the total number of customers gained over the past three years (2018?2020), which was 1.57 million, thanks to the cryptocurrency craze.

However, a recent demand by financial authorities for banks to strengthen anti-money laundering obligations has increased related risks, posing a variable factor. The Basel Committee on Banking Supervision (Basel Committee), which sets global financial supervisory standards and coordinates issues among regulators, recently classified cryptocurrencies as the highest-risk assets. The Basel Committee expressed strong concerns about the extreme price volatility and illicit transactions of cryptocurrencies, warning that they are being exploited for money laundering and terrorist financing, which could put banks at risk.

Concerns are somewhat greater for Upbit and Bithumb, whose largest shareholders are currently under prosecution and trial for charges including fraud. This is because financial authorities have recently decided to review illegal activities by major shareholders over the past five years, as well as hacking incidents and the corresponding responses.

For smaller exchanges lacking proper anti-money laundering capabilities, the possibility of mass closures is being raised. Under the Specified Financial Transactions Act, ISMS certification and real-name account partnerships with banks are mandatory, but small-scale exchanges find it virtually impossible to pass the stringent evaluation criteria for ISMS certification.