South Korea to ban all privacy-oriented cryptocurrencies or ‘dark coins’ such as Monero, Zcash, etc. from March 2021, as announced by the South Korean regulator, Financial Services Commission (FSC). The move intends to prevent money laundering issues in the country.
The new regulation was developed as part of the guidelines under the Special Payments Law, separate legislation that deals with the usage of cryptocurrencies in the country. The regulation also requires cryptocurrency exchanges in the country to integrate mandatory KYC/AML policies and report on their activities.
The privacy-coin ban directly impacts banks too as financial institutions that offer fiat gateway must only deal with those accounts under cryptocurrency exchanges that have undergone mandatory ID verification. The Identity verification includes the implementation of know-your-customer (KYC) policies on platforms including government-issued documents such as IDs or passports
Besides, the concerned banks are also required to conduct anti-money laundering (AML) risk assessment checks on these crypto exchanges.
Privacy coins have been under strict scrutiny for a while as it mandates confidential transactions that appear as a threat to the whole money laundering process. In 2020, major cryptocurrency exchanges in the country were forced to delist privacy coins from their platforms.
Even, OKEX South Korea had to delist several of their privacy coins to align with the Financial Action Task Force (FATF) rules around the concerns of AML. Likewise, several South Korean exchanges were refrained from handling private coins.
Privacy coins or dark coins can hide the information of a transaction that makes it impossible for their traceability. Even though the details of the cryptocurrencies are included in the digital ledger, their tracing gets difficult due to complex techniques such as ring signatures and mixers. However, that is not the case with cryptocurrencies such as Bitcoin and Ethereum, whose transactions are completely open.