South Korea Examines Virtual Currency Use At Six Banks

South Korean financial authorities, in the form of a joint inspection by the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), are taking a look at six local banks offering virtual currency accounts to institutions. The move comes as regulatory authorities in the nation are becoming increasingly concerned about digital currencies’ links to a surge in crime.

The investigation is to determine if such currency offerings are compliant with anti-money laundering rules, according to FSC Chairman Choi Jong-ku.

“Virtual currency is currently unable to function as a means of payment and it is being used for illegal purposes like money laundering, scams and fraudulent investor operations,” said Choi. He further noted that the point of the investigation is to provide better guidance to financial institutions — the FIs are not under suspicion of illegal activity.

“The side effects have been severe, leading to hacking problems at the institutions that handle cryptocurrency and an unreasonable spike in speculation.”

The banks in question have all provided virtual currency accounts to handle cryptocurrency in its many forms. Included in the investigation are NH Bank, Industrial Bank of Korea, Shinhan Bank, Kookmin Bank, Woori Bank and Korea Development Bank .

Woori Bank has already confirmed for Reuters that it is filling out a checklist for the inspection — the bank also noted that it has stopped providing virtual account services, as real-time transactions proved to be too expensive an offering.

NH Bank and Shinhan Bank representatives declined to comment, while the other three banks could not immediately be reached for comment.

Choi said authorities are also investigating how to limit cryptocurrency speculation, in line with efforts announced last month by Korea’s government. Those limits include a ban on anonymous cryptocurrency accounts and an enhanced ability for regulators to close down non-compliant exchanges.

Bitcoin, BTC=BTSP and other virtual coins have been extremely popular in South Korea, drawing wide investments. That wide breadth of investors has caused government concerns about speculation in a bubble.  South Korean exchanges have also proved to be vulnerable to hacking attacks, as South Korean exchanges tend to run higher exchange rates than their counterparts in the rest of the world.

Choi, however, noted that authorities have now fully invested in heading off virtual currency crime — and that the government will not hesitate to levy heavy punishments on those who attempt to thwart the laws to prevent price manipulation, pyramid schemes and money laundering.

“No one knows what is going on at these places that handle cryptocurrency because there is no direct regulation system in place regarding these institutions,” Choi said.