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User Data Issue Threatens to Blight New South Korean Crypto Regulation

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A South Korean regulator has warned of a wrinkle in forthcoming crypto exchange-governing – just days from its promulgation. At worst, the issue could leave sensitive data about customers compromised due to a legal problem.

As previously reported, a key amendment to the existing Act on Reporting and Use of Certain Financial Transaction Information will come into force on March 25, forcing exchanges to abide by anti-money laundering protocols and use real-name banking platforms that are verified by social security numbers.

This will require users – even existing customers – to submit their real names, proof of identity, and social security details to exchanges later this month. However, the amendment also requires exchanges to apply to the regulatory Financial Supervisory Service (FSS) for operating permits. The FSS will review applications in a six-month process that concludes in September.

But per a report from Kookmin Ilbo, another financial regulator, the Financial Intelligence Unit (FIU), which will police exchanges as of March 25, is concerned about the fate of user data from exchanges who ultimately fail to obtain licenses. South Korean law requires that companies purge their databases and safely delete sensitive user data within six months of no longer needing to access it.

However, in the case of firms that go out of business or end up in limbo after having their license requests turned down, the FIU is concerned that data could be compromised or left unaccounted for.

The FIU thus advised crypto exchanges to hold off on requesting such user data from customers until their applications are either approved or rejected. However, the same media outlet points out that this advice is not legally binding, and many exchanges have already begun requesting their clients send them sensitive data.

Unscrupulous players may also take advantage of the issue, posing as bona fide exchanges in a bid to collect “hundreds of thousands of social security numbers,” the report’s author noted.

There are some 120 crypto exchanges currently operating in South Korea, although the head of one of the largest trading platforms in the nation claimed earlier this year that only between “four and seven” exchanges could be left standing by September – although there has been a suggestion that a select few others may also make the grade if they are prepared to use alternative crypto custody arrangements.
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Learn more:
– Crypto Industry Wins More Time For FATF Travel Rule
– Can’t Beat Crypto Regulators? Educate Them
– Regulatory Kaleidoscope Challenges Crypto Industry – Crypto.com CCO
– Crypto Regulation in 2021: The Piecemeal Approach & New Winds
– Crypto Exchanges to Spend 2021 Focusing on DeFi, UX, and New Services

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