In response to a surge in illicit activities associated with the over-the-counter (OTC) crypto trading market, South Korea is ramping up its regulatory efforts. Financial regulators in this technologically advanced nation are actively delving into the largely unregulated domain of OTC crypto trading within the country.

The urgency to establish concrete regulatory measures stems from mounting concerns regarding possible abuse in terms of money laundering and other illegal endeavors.

Increasing Pressure on OTC Crypto Exchanges

In a recent discussion titled “Criminal Legal Issues Related to Virtual Assets,” key regulatory authorities, including Deputy Chief Prosecutor Ki No-Seong and the Financial Services Commission’s Park Min-woo, highlighted the potential dangers posed by the unregulated OTC crypto sector, as reported by local news sources.

Mr. Ki No-Seong emphasized the critical nature of regulating alleged illicit OTC crypto entities. These companies, often operating from foreign territories, enable the unauthorized conversion of virtual currencies into the Korean won or other global currencies, according to No-Seong.

The primary concern lies in the fact that these entities function without official registration, bypassing the established trading business norms in South Korea.

Unlike government-recognized exchanges, the OTC crypto market operates in the shadows. While leading regulated crypto platforms in South Korea, such as Upbit, deal with approximately 192 digital currencies, OTC platforms boast a roster of up to 700, according to the report.

These platforms, including peer-to-peer (P2P) exchanges, allow users to transact beyond the purview of established regulatory platforms.

Cases That Catalyzed the Call for Stricter Regulation

Illicit transactions through OTC platforms have not gone unnoticed. One notable case involved the International Crimes Investigation Department of the Incheon District Prosecutors’ Office.

Three individuals were apprehended and indicted for engaging in unauthorized foreign exchange operations between October 2021 and October last year.

These individuals allegedly acquired digital currencies worth $70.9 million (94 billion won) from foreign OTC platforms on behalf of Libyan clients. The acquired assets were subsequently converted into cash within Korean borders.

These illicit dealings are not isolated incidents. The Korea Customs Service sheds light on the extensive nature of the problem, estimating unlawful foreign exchange transactions via digital currencies to reach $4 billion (5.6 trillion won) in 2022.

Notably, the Customs data reveals that the total value implicated in financial misdeeds surged from 3.2 trillion won ($2.5 billion) in 2021 to 8.2 trillion won ($6.2 billion) the following year.

Nearly 70% of the tracked illicit financial activities involved crypto transactions. Interestingly, the report highlights that the sum of seized digital currencies, totaling $4.3 billion, originated from just 15 transactions.

These operations were primarily designed to buy overseas digital assets and later sell them domestically, capitalizing on South Korea’s regulatory environment, which often results in elevated prices for foreign cryptocurrencies for local buyers.

Looking to the Future

South Korea recognizes the urgency of implementing stricter regulations for the OTC crypto trading market to combat illicit activities such as money laundering and unauthorized foreign exchange operations. These efforts aim to protect both investors and the integrity of the country’s financial system.

Through increased regulatory scrutiny, South Korea aims to create a safer and more transparent environment for crypto-related activities, ensuring the benefits of digital assets while minimizing the potential risks involved.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.