Eun Sung-soo
Eun Sung-soo, the chairman of the South Korean Financial Services Commission.
Reuters

South Korea is cracking down on unregistered foreign crypto exchanges, just as the so-called 'bitcoin kimchi premium' has hit a four-month low.

In a statement issued on Thursday, the South Korean Financial Services Commission urged foreign virtual-asset service providers to register with them or risk being shut down by September for conducting illegal operations. The regulator said it had sent warnings to 27 such providers.

"For foreign VASPs that continue to operate without registration beyond the September 24 deadline, the KoFIU will notify them of their illegal activities and take actions such as blocking access to their websites to inhibit their illegal business operations," the statement said.

Additionally, criminal investigations and charges could be brought against providers that break the rules, the regulator said. Should crypto exchanges keep operating without registration after the September deadline, operators could face prison sentences or fines as high as 50 million South Korean Won (around $43,500).

New regulations that aim to stop cryptocurrencies being used to fund illicit activities came into effect in March of this year. They require crypto exchanges to register with the regulator and meet other requirements by introducing anti-money laundering strategies, tracking real names of customers, and establishing partnerships with local banks.

In April of this year, the chair of the South Korean Financial Services Commission said all of the country's crypto exchanges risked being shut down as none of them had registered with the regulator at the time.

The South Korean regulator has now reminded foreign crypto exchanges that the new rules also apply to them.

"The Act requires VASPs to register with the KoFIU as the law equally applies to foreign VASPs that conduct activities outside Korea but have domestic consequences within Korea," the statement said.

South Korea's crypto market has been increasing in popularity and size consistently, in part due to the so-called 'kimchi premium', which is the gap between dollar-traded bitcoin and tokens traded in Korean won. Some investors use this to increase their profits through arbitrage – they buy and sell the asset in different currencies or on different exchanges with the aim of making a profit from the price difference.

According to data analytics site CryptoQuant, the premium is currently at just 2.14% – a four-month low. Earlier this year, the premium was as high as 21.55%. A bigger premium often translates to higher trading volumes, as it entices investors. Should exchanges – and therefore the South Korean crypto market – be shut down, the 'kimchi premium' may no longer exist.

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