South Korean Regulator Cracks Down on Crypto Exchanges, Executives Detained for Fraud

It looks like the regulatory bodies in South Korea are not done yet on cracking a whip at the local cryptocurrency exchanges. As published by local news agency Yonhap, the Fair Trade Commission (FTC) of Korea has “ordered 12 cryptocurrency exchanges to revise their adhesion contracts, which largely fail to provide adequate protection for consumers.”

The Adhesion Contract also known as the ‘boilerplate’ contract gives the weaker party a little choice in a ‘make it or leave it’ sort of proposal drafted by the business.

The FTC found that the existing guidelines unfairly prevents crypto exchange customers from withdrawing their deposits while limiting other services to them and thereby forcing customers to shoulder all the losses upon seceding from the membership.

While soon following this step taken by the FTC, another news that comes from South Korea is that four executives from the local crypto exchanges have been detained by the Korean police over charges of fraud and alleged embezzlement.

One of the four people detained is the Kim Ik-hwan, the CEO of Coinnest, while the identity of the other three remains undisclosed at this point in time. The prosecutor told Reuters that the arrested executives transferred billions of won worth digital assets from the customers accounts to their personal accounts.

Coinnest is currently the sixth largest crypto exchange of Korea with over half a million registered users by January 2018. The Korea Blockchain Association - a self-regulatory body of 33 cryptocurrency exchanges is investigating the matter and looking whether to expel Coinnest from the membership.

Following the police action, Coinnest quickly released the update stating that its executive team has been replaced. The statement reads: “In order to resolve customer anxiety and sincere vocation requirements, the Coinnest Board of Directors has removed the involvement of executive management from the point of the last investigation and has been switched to a specialized management system."

The company has also assured that in future, it will carry out the audits by third-parties and will disclose its results publicly.

Following the mad rush of investors at the crypto exchanges last year, the South Korean regulators have increased scrutiny over the country’s digital currency market. Earlier in January 2018, there had been reports of the Korean police and tax officials raiding the country’s two biggest exchanges which included Bithumb.

However, following strict action by the government regulatory bodies and agencies, the exchanges have assured to work in a direction to improve and self-regulate themselves. On Tuesday, Korbit CEO Tony Lyu told an audience in Seoul, "We need to create a healthy market first. If exchanges can't do that, we will have to turn to the government."