The Korean Financial Authority has launched an investigation into the exchanges to check if any of them are listing their own coins themselves. This investigation is the consequence of the bankruptcy of the FTX exchange. Already covered in a slew of articles, FTX filed for bankruptcy in the United States on November 11 leaving over 100,000 creditors aggrieved. Customers fled the exchange massively due to doubts about FTX’s capital adequacy.
Korean rules applicable to exchanges
Exchanges are not allowed to issue their own native tokens. Thus, the Korea Financial Intelligence Unit (KoFIU), which is part of the Financial Services Commission (FSC), is investigating possible violations of this rule. The Korean regulator has decided to take the lead following the bomb caused by FTX. According to an FSC spokesperson, national exchanges cannot issue their own coins. The financial authorities carried out the first round of investigations. Additionally, they plan to look into more specific details, especially when it comes to quoting native coins.
Indeed, not only national exchanges cannot list native currencies, but the sale, exchange or intermediation for listed currencies is prohibited. The Law on Reporting and Use of Specified Financial Transaction Information regulates the sector. One of the Daegu-based exchanges is currently under investigation. It is suspected that FLAT, a coin listed in January 2020, could be a so-called native coin. Financial authorities have confirmed that the five major exchanges, including Upbit and Bithumb, have not issued their own native coins. Nevertheless, the reviews on the smaller exchanges are not yet complete.
The impact of FTX’s collapse in South Korea
According to local press, the number of Korean investors in FTX is around 6,000. Korean users generated 6% of FTX’s Internet traffic in October. According to Similarweb, this figure puts them in second place behind Japan. The CEOs of the five major exchanges have said a similar incident is unlikely to happen in Korea. Indeed, in a meeting with the KoFIU on November 16, the CEOs asserted that Korean law would not allow such an event. They added that the fundamental factor in the collapse of the FTX is the lack of organization and regulation. The collapse was reportedly precipitated by the improper use of client assets and the misuse of its native currency FTT.
In an effort to maintain the value and stability of FTT before its fall, Alamada Research, a trading firm co-founded by FTX founder Sam Bankman-Fried, bought and sold the majority of FTT on the exchange, essentially fixing the token price. The collapse of FTX triggered a drop in cryptocurrency prices. This wiped out around $180 billion worth of digital assets this month.
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