| Corporate logos of NongHyup and K bank / Courtesy of each firm |
Meanwhile, Shinhan to extend ties with local crypto exchange
By Lee Min-hyung
After Bitcoin reached a record high, local banks and asset management companies are unexpectedly busy increasing their exposure to cryptocurrencies, with the country's financial regulators poised to step in with forthcoming new rules.
The general opinion is that crypto assets are quite promising on multiple fronts, in terms of their usage and applicable areas, with a lot of investment banks, including Goldman Sachs, studying how they could be used. However, South Korea has been maintaining the hawkish stance toward cryptocurrencies that holding crypto assets will pose grave risks for banks, general consumers and even investment banks.
That stance is pushing NongHyup (NH) Bank and K bank to face a growing quandary over whether they should extend their contracts with cryptocurrency exchange operators. So far this year, the two local lenders were supposed to keep issuing real-name accounts for their exchange partners. Real-name accounts are needed for investors in crypto exchanges to obtain any cash profits, as well as for greater security.
According to market watchers, the key issue is that huge concerns still remain with cryptocurrencies. There are worries that the government may believe crypto assets could be the mother of all “bubbles,” with the serious potential to disrupt local financial systems. If any problems were to occur, banks with ties to crypto exchanges would have to take some responsibility for the fallout.
Nevertheless, NongHyup has maintained its partnership with Coinone in terms of handling crypto assets. Coinone is a Seoul-based exchange operator. K bank, the nation's first internet-only bank, has also enjoyed unprecedented publicity since making an alliance with Upbit in June 2020.
But both banks now have to decide whether to renew their ties with the crypto exchange operators before September, when the Special Financial Information Act takes effect. The law does not allow any crypto exchanges to operate unless they secure bank partners that can issue accounts under a real-name system.
The two lenders have said that they do not have any immediate plans to cut ties with their partners. However, they also declined to confirm the extension of the alliances before the timeline. The Financial Services Commission has not confirmed the details of any measures to crack down on illegal transactions or fraud attempts concerning cryptocurrencies. But views are that the country's top financial policy regulator will never push for the deregulation of the burgeoning digital currency industry.
“We cannot mention any details about the contract renewal. We are watching the regulatory landscape very closely,” a K bank official said.
Shinhan Bank is another major commercial bank offering real-name accounts for users of Korbit, the nation's first crypto exchange. But the lender is widely expected to keep operating the service in consideration of its strong alliance with Nexon, the game developer. NXC, Nexon's unlisted holding firm, took over Korbit in 2017. Shinhan and Nexon earlier established a “strategic alliance,” under which both companies reached a consensus to push for joint businesses that bring together games and finance.
“We keep urging our crypto partner to enhance the security of its exchange platform in order to offer more stable and reliable digital currency exchange services,” a Shinhan official said.
Other top-tier banks ― such as KB, Woori, Hana and Kakao Bank ― reaffirmed their pessimistic stance over the partnerships with local crypto exchanges, citing how the continuance of these partnerships seems “too risky” right now.
“We do not want to take risks for the time being, as no specific regulatory guidelines have been fixed yet,” an official from one of the banks said. “Under the current law, banks will fall victim to any possible financial incidents incurred from their affiliated exchanges. We can expect a huge amount of interest and publicity due to the crypto market's rapid growth, but clinching a partnership with an exchange does not guarantee stable returns for us.”
Data shows that the number of crypto-related fraud cases is on the rapid rise. The number of cryptocurrency fraud cases came in at 333 here, last year, up by 223 percent from the previous year, according to data released by Rep. Kim Byung-wook of the ruling Democratic Party of Korea.
The number of individuals who were investigated for their involvement in crypto fraud cases also doubled, to 560 from 289, during the same period.
“The reality is that cryptocurrency crimes are increasing sharply at a time when the daily crypto transaction volume exceeds that of the stock market here,” Kim said. “We need to protect its users by establishing order in the market and resolving any risk factors surrounding the market.”