Korean crypto exchanges remain unprepared as FATF’s travel rule comes into force Some critics blame excessive competition between two travel rule solutions for confusion

Translated by Ryu Ho-joung 공개 2022-03-29 08:09:58

이 기사는 2022년 03월 29일 08:04 더벨 유료페이지에 표출된 기사입니다.

The so-called travel rule by the Financial Action Task Force (FATF) has caused confusion to crypto exchange users on the first day of its implementation in South Korea as the nation’s virtual asset trading platforms are still not fully prepared for the change, even after being given a one-year grace period.

The travel rule, which came into effect on March 25 in South Korea, requires virtual asset service providers to collect and disclose customer information for transactions over a million Korean won (approximately $816) to prevent money laundering and terrorist funding.

On the first day of enforcing the rule, however, there was a lot of confusion because two travel rule solutions available in the country – VerifyVASP and CODE – have yet to be linked with each other and function properly.

Bithumb, Coinone and Korbit – which are the country’s major crypto exchanges collaborating on CODE – told their users on Thursday afternoon that transaction services to other South Korean exchanges would not be available for a certain period, meaning their users can only transfer crypto to their digital wallets or some exchanges outside the country for the time being.

That was an abrupt shift from the previous plans by the three exchanges. As recently as last Wednesday, Bithumb had intended to continue to allow its users to send crypto to whitelisted wallets without a link with the travel rule systems even after the implementation of the change, and so had Coinone and Korbit.

But the three firms have changed the original plans because the country’s financial authorities strongly recommended crypto exchanges use the travel rule solutions – which will enable them to have access to each other’s customer information on a real-time basis – for transactions between domestic trading platforms without exceptions.

Users of each of the three exchanges will be able to send their digital assets to the other two platforms starting from April 8, and to Dunamu’s Upbit – the country’s biggest crypto exchange which has a separate travel rule system called VerifyVASP – starting from April 25.

In between, the users can first transfer crypto to their digital wallets and then send to other domestic exchanges, which will make them pay double fees and risk potential investment losses.

This will also affect the country’s crypto exchanges financially because it is likely that a significant decrease in crypto transfers will reduce their fee revenue.

Moreover, it will take longer time than expected for the country’s major crypto exchanges to generate meaningful revenue by providing the travel rule solutions to their smaller peers.

Meanwhile, Upbit was the country’s only major trading platform to run its travel rule system – which is VerifyVASP developed together with its subsidiary Lambda256 – smoothly on the first day of the rule’s implementation. VerifyVASP is currently used by Upbit and five other smaller crypto exchanges in the counrty.

Some critics said excessive competition between Upbit and the three other major platforms was one of the reasons for causing the confusion to their users. Upbit had initially joined forces with the three exchanges, but later withdrew from the partnership to formulate its own solution.

Some industry insiders criticized VerifyVASP for abusing its market dominance and not having worked actively with CODE to link the two solutions. “VerifyVASP obviously did nothing to shorten the time needed to complete a link between the two solutions,” said an industry insider.

“The country’s crypto exchanges were given a one-year grace period to prepare for the travel rule’s implementation, but they clearly failed to be fully prepared by the deadline because they focused on competing rather than working together,” another industry insider said.

“VerifyVASP has worked hard to link the two solutions and never been less cooperative or requested any change to its counterpart,” an official at Upbit said, adding it would do its best to minimize the inconvenience caused to its customers. (Reporting by Yun-ju Roh)
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