South Korea’s New Crypto Law Mandates Supervisory Fees for Crypto Exchanges

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South Korea’s new Virtual Asset User Protection Act has subjected crypto exchanges to a new financial obligation. Following its implementation, the new law requires crypto exchanges, including Coinonr, Bithumb, and Upbit, to pay supervisory fees. 

According to the report, each crypto exchange must pay an estimated 300 million won (approximately $220,000) based on its operating revenue.

Crypto Fees in South Korea

The Financial Services Commission (FSC) announced the amended Regulations on the Collections of Financial Institution Contributions on July 1. 

The commission also announced the amendment of the ‘Enforcement Decree of the Act on the Establishment of the Financial Services Commission’ on the same day.

The changes state that the supervisory fees, which digital asset exchanges will start paying next year, are payments for the Financial Supervisory Service inspection. This move aims to enhance oversight and mitigate risks associated with the rapidly growing crypto sector.

The fees are calculated based on the previous fiscal year’s operating revenue. For instance, Dunamu’s consolidated financial statements suggest that Upbit has to pay around 272 million won ($199,592) based on the new contribution rate of 2.686818 per 10,000 won. 

On the other hand, Bithumb will pay an estimated fee of 21.14 million won ($155,157). GOPAX is expected to pay an 830,000 won ($608) charge, while Coinone would pay up to 6.03 million won, which translates to $4,422.

Such charges are undoubtedly particularly burdensome for exchanges with smaller revenue streams. Fortunately for Korbit, it escaped these fees since its operating revenue last year was only about 1.7 billion won, below the fee-imposing threshold.

The newly imposed fees, similar to a quasi-tax, target financial institutions under FSS inspection, including those with operating revenues of 3 billion won or more.

In the past, electronic financial firms such as Naver Financial and Kakao Pay, including online investment-linked finance companies, spread the supervisory fee payment over three years.

However, these fees have been enforced much faster for virtual asset operators. This is probably due to the rapid expansion of the virtual asset market and the heightened need to prevent unfair trading practices.

This accelerated implementation has caught many in the industry off guard, as they anticipated a more gradual approach.

Necessity of the Supervisory Fees 

The FSS’s prompt imposition of these fees highlights the urgency of addressing the regulatory and supervisory demands of the fast-growing crypto market.

According to the FSC announcement, the relevant organization is already operational and incurring costs, necessitating the immediate collection of the supervisory share.

The FSS’s proactive stance aims to strengthen market stability and investor protection in the unpredictable virtual currency space. While Upbit and Bithumb are financially more capable of managing these new fees, several other exchanges are experiencing operational losses.

Despite their financial struggles, exchanges like Coinone and GOPAX must comply with the fee requirements due to their revenue levels.

Meanwhile, the new regulation has also caused a notable 30% decline in trading volumes for these exchanges, including Upbit. This shows the broader effects of such regulatory changes on market activity.