The South Korean Financial Services Commission has taken steps to ban cross-trading on the country’s cryptocurrency exchanges.
The measure is part of a series of changes to the state law on the information and use of certain information about financial transactions.
Cross-trading, an illegal practice in many jurisdictions, involves clearing orders to buy and sell the same asset (at the same price) without recording the transaction in the order book.
According to a report by the local news agency Newsis, exchange operators in South Korea have complained about the planned ban. that the measure would significantly disrupt the already tense operation.
According to some South Korean cryptocurrency exchange operators, the proposed move would stifle the flow of money to their platforms.
Apparently, Exchanges in South Korea cross-trade to convert commissions collected in crypto into Korean won. An industry official commented on this practice to Newssis:
“In order to convert the cryptocurrencies received as commission into KRW, you have no choice but to sell the cryptocurrencies at your workplace.”
The ban on cross-trading would theoretically prevent platforms from converting these commissions from crypto to fiat currency. Indeed, the proposed ban could include an obligation to work without commissions, which would eliminate the income that would have been generated from commercial commissions.
According to an anonymous source South Korean crypto exchanges will be forced to start a new business to convert trading fees into fiat currencyHowever, such a measure would be associated with considerable cost consequences, as the country’s anti-money laundering policy would make it more expensive to run the company in question.
In addition to having an impact on foreign exchange revenues, the measure could also pose significant challenges to paying taxesIn fact, withholding fees are applied to exchange fees, which means platforms have to find funds to convert the fees received in cryptocurrencies into won. since no taxes can be paid in cryptocurrencies in South Korea.
As a preliminary measure Cryptocurrency exchanges in South Korea could be forced to use fee payments received in crypto as collateral to obtain credits for tax withholding.
Meanwhile, the FSC is not intimidated by the criticism from the stock exchanges that cross-trading represents a “conflict of interest”. According to the FSC, exchange operators have access to inside information and the ability to trade with customers could lead to price manipulation.
On the question of how exchanges will handle fees charged in crypto, the commission stated: “Whether you want to exchange cryptocurrencies for another asset (other than the won) or keep cryptocurrencies, you need to find a solution for yourself.“.
As previously reported by Cointelegraph, the FSC recently held a meeting with 20 cryptocurrency exchanges in the countryAt the meeting, various small and medium-sized platforms made the Commission aware of the difficulties they were facing in conducting their operations.
In addition to the ban on cross-trading, the new changes will also force exchanges to hold at least 70% of customer deposits in cold wallets. The determination is part of anti-hacking measures for crypto exchanges, and the FSC plans to investigate past attacks to uncover possible insider involvement.