South Korean Banks May Be in Trouble as Regulator Probes Kimchi Premium Bitcoin ‘Irregularities’


South Korean banks could find themselves in the firing line after the government, media outlets, and regulators stepped up the scrutiny of the banks’ role in enabling kimchi premium traders to make fast money when trading volumes rise. As previously reported, regulators stepped in last month to warn banks about their failure to stop traders from buying tokens like bitcoin (BTC) overseas via wire transfers – which traders then sought to dump on domestic crypto exchanges for a hefty profit. When BTC prices have risen in recent years, retail investors’ trading volumes have soared – historically leading to discrepancies of up to 50% between prices on domestic platforms like Upbit and global platforms like Binance. Some opportunistic traders have sought to take advantage of such price gaps by buying BTC from over-the-counter vendors – primarily individuals based in Mainland China, Hong Kong, and Japan. South Korean authorities, which already impose strict regulations on foreign exchange trading, have equated such trading with money laundering – and have vowed to stamp it out. Banks have since responded with overseas remittance caps, but concern has since arisen that – historically – some USD 3.4 billion worth of illegal foreign exchanges have been carried out in recent years. And the Financial Supervisory Service (FSS) last week said that all of this money may have passed through domestic banks. The FSS initially identified what it thinks were “abnormal” foreign exchange transactions at both Woori and Shinhan, with prosecutors also looking at the evidence. But per Energy Kyungjae, which quoted unnamed banking industry sources, the FSS has been aware of potential issues for over a year – and has previously warned most domestic banks about possible violations. The media outlet added that the regulator had repeated its warnings “several times” in 2021.

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