New Reporting Mandate for Crypto Exchanges
In a significant move, the Bank of Korea (BOK) has announced a new requirement for domestic cryptocurrency exchanges to disclose the monthly holdings of users who have transferred assets outside the country. This mandate will take effect on December 2, 2024.
Who Needs to Report?
This regulation affects users who have made international cryptocurrency transfers at least once since July 19, 2024. Providers must continue to report even in months where the affected users do not execute any overseas transactions, as long as they hold reportable assets.
Details on Reporting
Exchanges are required to account for a range of holdings, including:
- Dormant accounts
- Assets that have been delisted
- Staked cryptocurrencies
When calculating holdings, exchanges must value all reportable assets as of 11:59:59 p.m. on the last day of the month. Reports are due by 5:30 p.m. on the 10th of the following month via the BOK's foreign exchange information network.
Understanding the New FX1021 Report
The new reporting framework introduces a document titled the Foreign Exchange Information Network Reporting Manual for Virtual Asset Transfer Service Providers, which outlines the submission protocol known as FX1021. This will include several key metrics:
- The amount of cryptocurrency held by qualifying users
- The Korean won value of those holdings
- The total value of digital assets transferred into and out of South Korea during the month
Even users who have zero balances during a reporting month will be included, though they will not need to be reported again unless they re-establish a balance.
Looking Back at Historical Transfers
As the new framework rolls out, the Bank of Korea is determining whether historical records from July 19, 2024, to December 2024 will also need to be submitted. This is aligned with the introduction of South Korea's Virtual Asset User Protection Act, designed to enhance investor security.
Bank officials plan to engage with virtual asset transfer service providers for input on whether these historic records will be necessary. The focus on past transactions emphasizes the increasing challenge of monitoring the rapidly evolving field of cryptocurrency.
Wider Regulatory Changes in South Korea
This new requirement is part of a broader effort by South Korean authorities to regulate overseas cryptocurrency transfers more effectively. Recent amendments made to the foreign exchange laws now necessitate that businesses involved in international cryptocurrency transactions register with the government. Furthermore, there are specific licensing requirements for fintech firms wanting to engage in this sector.
These regulations surfaced amid growing concerns regarding the volume and risk associated with international crypto transfers. Data highlighted that remittances via major exchanges surged by 380% since 2022, suggesting a rapid rise in interest and participation in global cryptocurrency transactions.
To bolster security, South Korea also implemented tighter controls in August, especially targeting high-value transfers exceeding 10 million won, mandating risk checks for transactions involving foreign exchanges and self-hosted wallets. In light of these evolving measures, the South Korean government is keen to ensure thorough monitoring and risk management in the cryptocurrency arena.