The South Korean Financial Information Unit (FIU) has launched a survey of Bithumb, one of the nation’s largest cryptocurrency exchanges, about its decision to share an order book with Australian trading platform Stellar.
Operating under the Financial Services Commission, FIU is considering whether Bithumb’s arrangements govern the intermediation of virtual assets and comply with the special Financial Transaction Information Act, which imposes strict AML and customer verification requirements.
September 22nd, Bithumb announced When the Tether (USDT) market was opened, an agreement was reached to share the order book with Stellar.
Liquidity benefits under scrutiny
Order sharing is a practice in which purchases and sales orders from one exchange appear on another platform and match. It is relatively common in the crypto trading field. Supporters say it will increase liquidity and allow smaller exchanges to compete with larger rivals among other perks.
However, regulators tend to carefully review this process because of the risks, as unintentionally unverified customers and illegal transactions can flow through the system by connecting order flows across jurisdictions.
As expected, South Korean authorities are concerned about their ability to monitor foreign users who gain indirect access to domestic trading platforms.
Bithumb deals with legal hurdles and regulatory pushbacks
The Special Financial Transaction Information Act prohibits Korean transactions from intermediary transactions with other platforms unless they fully comply with the rules set in that category. Some of these rules include checking the licenses of foreign partners from home regulators, verifying South Korea’s trader’s customer information, and allowing local governments to access trading data on demand.
According to people familiar with FIU probes, Bithumb’s arrangement with Stellar could be short in some numbers. Officials are said to be questioning whether the Korean exchange has carried out sufficient due diligence for Stellar’s license status and whether it can guarantee that Stellar’s customer identity is reliable.
One of the potentially stumbling problems in the move to maintain 100% compliance with Bithumb is the requirements to provide South Korean regulators with access to foreign customer data. Experts want to share such information across borders with regulators in other countries to increase privacy and > Bithumb to follow, and it is unclear whether Stellar has the infrastructure or legal authority to share detailed customer information with Korean authorities. However, Bithumb officials said they discussed this with the Australian exchange.
Korea’s crypto sector is watching scrutiny on Bithumb
Bithumb defended the decision, saying the partnership with Stellar was in consultation with financial authorities and the company remains committed to following local regulations. However, the bones of competition against the authorities appear to be the implementation of Bitham of these procedures.
However, given the information available, it is not clear how compliant or non-compliant Bithumb is.
If regulators control over Bithumb, other South Korean exchanges may discourage them from pursuing similar liquidity sharing arrangements.
The survey is because South Korea solidifies its role as one of the world’s most highly regulated crypto markets. Since the collapse of Terrausd in 2022, regulators have been closely monitoring the exchange and the crypto industry in general, demanding stronger AML protocols and implementing stricter controls for customer verification.
