Judges in South Korea have ruled that the refusal of banking services to a cryptocurrency exchange by one of the country’s commercial banks was unlawful and cannot be upheld, in a significant ruling which sees the continued erosion of blocks by traditional financial institutions to crypto firms.
One obstacle crypto firms have faced worldwide in growing an infrastructure for this still-nascent payment class, is that of traditional finance, which has in many cases attempted to form a wall around their industry and make it as difficult as possible for disruptive firms to gain market access. There has been evidence of this in a number of countries including Poland, Ireland and Norway. Whilst many enterprises have often faced an uphill struggle mounting any appeal against banks’ decisions, a South Korean ruling last week marks an important victory for crypto firms which have found themselves denied service by banks.
The Central District Court’s 50th Civil Affairs Division of South Korea, ruled that Nonghyup bank was in breach of the law when it stopped offering deposit and withdrawal services to Coinis cryptocurrency exchange. It has been reported by South Korean news agency Zdnet Korea, that Nonghyup explained that it made the decision to deny service to Coinis based on guidelines around anti-money laundering practices, issued by the country’s Financial Services Commission.
The case was made on the grounds that the two enterprises already had a contract laid out and that Nonghyup breached this contract by denying the exchange its services.
Under the Microscope
Nonghyup has been scrutinised recently regarding its relationships with crypto firms, by South Korea’s regulators investigating the bank’s compliance with anti-money laundering directives and business relationships. It is therefore not completely surprising that their practices were subject to investigation, however it may come as a surprise to some that the courts ruled in favour of the crypto exchange rather than the bank.
This scrutiny has been part of a larger national investigation into the practices of banks which have business connections to crypto firms. Regulators have been focussing on ensuring compliance with KYC protocol and cracking down on speculative trading.
Other banks investigated include the Korea Development Bank, Industrial Bank of Korea, Shinhan Bank, Kookmin Bank and Woori Bank. However, three banks, including Nonghyup have also been subject to on-site inspections by regulators.
Nonghyup already has a history of conflict over cryptocurrency. Three months prior to this, the bank refused to renew a contract it held with Bithumb cryptocurrency exchange. The bank cited a laxity on the part of Bithumb as the reason for its decision. Bithumb, two months prior to the contract renewal date, was hacked and had the equivalent of $30 million in crypto stolen. An official from the bank stated at the time:
“We have decided not to renew the contract because Bithumb still has problems in protecting consumers and information and preventing money laundering.”
Whilst Bithumb stated it would reimburse its customers, the bank nevertheless decided the risk was too great.
Image Source: “Flickr”
Alex has been putting words on paper since he was old enough to hold a pen; when he bought his first bitcoin in January 2017, those words discovered their place within crypto as well. He holds a master’s degree in international relations from Leiden University in the Netherlands, and his special expertise lies in European cryptocurrency regulation.