South Korea has been on the news lately for its stringent regulations against crypto exchanges. However, this is not without consequence. One of the consequences is that small exchanges may find it hard to operate in the country.
The biggest issue they are facing is that of licensing from banks. They have been trying to secure these licenses ahead of laws requiring trading accounts to have real names. Without licenses from banks, small and medium-sized exchanges are facing liquidity risks, a factor that could make their operations difficult.
However, this is not the only issue. The country is continually coming up with regulations that could make operations difficult, even for the big exchanges. Reports from South Korea indicate that the authorities are planning to put an end to exchange cross-trading.
Cross-trading is a practice whereby transactions are settled but not put on the order book. Cross-trading is banned in most countries but has been reasonably practical for exchanges in South Korea.
That’s because the exchanges take their fee in crypto, while crypto trades are denominated in Won (Korea’s local currency). Through cross-trading, it is easy for exchanges to do such conversion. Without it, Korean exchanges could find it difficult to release gains, and that is a risk to their operations.
According to industry experts, this ban would make things extremely difficult for exchanges. While the bigger exchanges could survive, the smaller ones that are already feeling the squeeze could find it hard to operate.
It will be interesting to see how this will affect the Korean finance industry. That’s because industry revenues have a trickle-down on banks and other finance industry players.