South Korea’s second largest financial group, Shinhan bank intends to completely stop anonymous crypto transactions. This bank will essentially stop providing virtual accounts to encrypted exchanges.
This announcement comes in the wake of the global tightening of regulations on crypto regulations. This is because regulatory bodies like FATF have advised member countries to implement certain regulations on crypto to combat money laundering and terrorist financing. Accordingly, countries are now looking at disclosure and KYC requirements on exchanges more closely.
Steps to Be Implemented
Shinhan will, therefore, implement a raft of measures to this end. They include: increasing staff to scrutinize such accounts and developing systems dealing with fraud detection. Furthermore, the bank also intends incorporating artificial intelligence (AI) systems that detect suspicious activity.
Additionally, the bank may stop issuing virtual accounts for the encrypted exchange Korbit. Shinhan will essentially not extend the term of the service contract due. At the moment, there are three exchanges where customers can transact crypto after using cash in real-name verification accounts in the country. These are Upbit, Bithumb and Coin One.
Shinhan is not only focusing on crypto fraud but also on telephone financial fraud. This will make the construction of AI monitoring systems even more appropriate.
The termination of the agreement with Shinhan is a delicate process. This is because the bank must give time to the exchange to either change or shift its services elsewhere. The bank is essentially incurring risk if it continues to fund the virtual accounts. This is because the strict AML measures mean that regulators will begin to fine banks for facilitating anonymous crypto.
The Future of Anonymous Transactions
This move by Shinhan will certainly become a trend moving forward. Ensuring that anonymous transactions are difficult is the only way for regulators to have a leash on the crypto sector. Cracking down on virtual accounts is certainly a way to achieve this. Virtual accounts are more difficult for banks to control. Besides, they facilitate anonymous transactions which are not possible using regular bank accounts.
Korbit customers will have to find alternatives to this convenience. This means that they will not be able to deposit money from the bank to their Korbit accounts. As such, investors in Korbit can choose to continue on Korbit but need alternative banks for virtual account possibilities. However, it does not make sense to use a domestic exchange that can’t deposit local currency. Accordingly, this may be the beginning of the end for Korbit. As one Korbit official put it,
“This way we will die. But we are committed to building a better system than any exchange. We ask the authorities to create an environment that works.”
Shinhan bank has taken a bold step in attempting to comply with the new AML regime. This is a pre-emptive step in strengthening the regulatory standard. It goes without saying that no bank would ever want to turn away business. This is just an indicator of the sweeping impact the new FATF measures will have.
Anonymous transactions have been a feature of cryptocurrency since inception. This is because many are drawn to its decentralization and absence of centralized regulation. As more established exchanges make business more regulatory compliant, the behavior of crypto users will be interesting to follow. Will such suspensions increase the amount of black market crypto transactions? That should be a curious topic for crypto analysts moving forward.