South Korean regulators have announced a plan to ban banks from activities involving cryptocurrencies, prompting major banks in the country to declare they will no longer issue accounts required for crypto trading. South Korea’s top bitcoin exchanges are all effected, including Bithumb, Coinone, and Korbit. Banks that have made announcements include Shinhan Bank, Korea Development Bank, and Industrial Bank of Korea.
Crypto Ban Planned for Banks, Minors, and Foreigners
The South Korean government has been holding meetings daily to discuss cryptocurrency regulation. On Wednesday, local publications reported that the regulators are planning to ban banks from activities involving cryptocurrencies. According to AFP:
The Prime Minister’s Office said Seoul would ban financial institutions from dealing in virtual currencies – including buying, possessing, or holding them as collateral.
In addition, Korea Herald reported that “banks in Korea that provide virtual bank accounts for cryptocurrency trades will have to verify the identification of account holders when creating new ones,” according to the plan. Furthermore, the regulators plan to ban minors and foreigners from both trading in cryptocurrency and creating bank accounts in the country.
Virtual bank accounts are issued by traditional banks for customers of cryptocurrency exchanges. A customer wanting to start trading at a crypto exchange must first open a virtual bank account and deposit money into it. All major Korean exchanges, including the country’s largest bitcoin exchange Bithumb, require customers to open virtual bank accounts before trading. The Kyunghyang Shinmun described:
Virtual currency can be traded only after joining a virtual currency exchange and depositing money in a virtual account assigned to the exchange.
Banks Ditching Crypto Accounts
Wednesday’s announcement marks the first time the regulators have applied restrictions on virtual bank accounts.
The country’s major state-run and commercial banks immediately responded by announcing that they will stop issuing new virtual bank accounts for cryptocurrency exchanges. Some are even canceling existing accounts, Arirang News reported, adding that:
Such measures will effectively freeze most traders out of the cryptocurrency market as the country’s leading virtual currency exchanges such as Bithumb and Coinone require users to create a virtual account before they can conduct any transactions.
If a bank closes an exchange’s virtual bank accounts, then “it is fundamentally impossible to sell and buy virtual currencies through the bank,” Business Korea noted.
Major Banks Jumping Ship
Among the banks that have decided to stop issuing virtual accounts are Shinhan Bank, Korea Development Bank (KDB), Industrial Bank Of Korea (IBK), Woori Bank, KB Kookmin Bank, and KEB Hana Bank.
Shinhan Bank, which issues virtual accounts for Bithumb and Korbit, will not issue new virtual accounts but will not cancel existing accounts, according to the Kyunghyang Shinmun. In November, news.Bitcoin.com reported on the bank launching a cryptocurrency custody service.
The state-run KDB which issues virtual bank accounts for Coinone announced that it will “stop all the businesses related to cryptocurrency transactions, including bitcoin, from January next year,” Business Korea reported on Wednesday.
Woori Bank which issues virtual bank accounts for Korbit is taking the same approach as KDB. The bank will cancel existing virtual accounts as well as suspend issuing new ones. IBK Bank, KB Kookmin Bank, and KEB Hana Bank have all stopped issuing virtual accounts.
At the time of writing, Nonghyup Bank has not made an announcement regarding the matter. According to the Investor publication, this bank provides virtual account services to several exchanges including Bithumb, Coinone, and Korbit.
What do you think of the South Korean government’s plan to ban banks from dealing with cryptocurrencies? What do you think will happen to the Korean crypto market? Let us know in the comments section below.