South Korean Banks Are In Firing Line – Kimchi Premium BTC Problems

South Korean banks are in the firing line after the government, media, and regulators increased the scrutiny of the banks’ role in enabling kimchi premium dealers to profit quickly when trading volumes increase.

As was previously reported, regulators intervened last month to alert banks about their failure to prevent traders from using wire transfers to buy tokens like bitcoin (BTC) overseas, which traders then tried to sell for a handsome profit on domestic cryptocurrency exchanges, thus putting South Korean banks in the firing line.

Retail investors’ trading volumes have skyrocketed as BTC prices have increased in recent years, which has traditionally resulted in price differences of up to 50% between those on local platforms like Upbit.

By purchasing BTC from over-the-counter sellers, mostly people based in Mainland China, Hong Kong, and Japan, some opportunistic traders have attempted to profit from such price discrepancies. Foreign exchange trading is already subject to tight laws in South Korea, and the government has compared it to money laundering and vowed to stop it.

After banks responded with overseas remittance limitations, concern has subsequently grown over the fact that, historically, recent years have seen unlawful foreign exchanges totaling over USD 3.4 billion. And last week, the Financial Supervisory Service (FSS) stated that it’s possible that all of this money went through domestic institutions.

Prosecutors also looked at the evidence after the FSS initially discovered what it believes to be “abnormal” foreign exchange transactions at both Woori and Shinhan.

The FSS has been aware of potential problems for more than a year, according to Energy Kyungjae, which cited anonymous banking industry sources. The FSS has also previously notified most domestic banks about potential infractions. The media outlet further stated that the agency had “many times” in 2021 reiterated its warnings.

The regulator reportedly sent confidential warnings to Kookmin Bank, KEB Hana Bank, and Nonghyup Bank in addition to the aforementioned Woori and Shinhan. All five banks apparently received instructions from the FSS in 2021 “to be wary about arbitrage trading aimed at the kimchi premium.”

An unidentified business insider was reported as saying that the FSC looks to be more involved in the cryptocurrency industry and market than it used to. This was said as a response to the news.

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