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Shinhan Bank’s takes radical steps to crack down on phishing : canceling contract with an exchange?

Shinhan Bank may shut down offering user-verified virtual bank accounts and teller services for Korean cryptocurrency exchange Korbit. A contract between the two is nearing expiration, but Shinhan is said to be considering cutting off relations by not extending the deal. If that happens, there will only be three local exchanges where users can deposit cash and trade cryptocurrency through a user-verified bank account: Upbeat, Bithumb and Coinone. Smaller exchanges that are not in this group use so-called “beehive accounts,” where the exchange cannot issue individual user-verified bank accounts and therefore handles all transactions through one account. Shinhan Bank declares war on voice phishing On June 30, Shinhan Bank issued a press released titled “Declaration of war against voice phishing.” Strategies laid out in the document included establishing a separate unit and a research center aimed at eradicating voice phishing, as well as an AI monitoring system. The press release was finished with the words “We’re looking for a radical resolution regarding virtual currency exchanges.” Shinhan Bank is reportedly looking into cutting transactions with Korbit, for which its supply contract on offering virtual accounts will soon terminate. The final decision will be made by the unit specializing in voice phishing crimes, after members of the team are finalized this month. A Shinhan Bank spokesman said that currently, “nothing is decided.” Money deposited in virtual accounts cannot be retrieved At first, Shinhan considered renewing the contract by adding the condition of a 72-hour delay when depositing cash. But across international finance institutions, anti-money laundering efforts have become stricter. It is generally accepted that there is a higher risk when it comes to banks offering virtual accounts. When a bank account is used for voice phishing and the money is still inside the owner’s account, the bank can forcefully suspend the payment. But when it comes to virtual accounts, there’s no way to retrieve the money if the owner buys virtual currency with cash and sends it to another wallet. In other words, the risk is much higher for virtual exchange accounts than regular bank accounts. What happens to Korbit users? Even if Shinhan Bank cancels the contract, this won’t prohibit users from withdrawing funds, only depositing. Currently, depositing is blocked anyway due to an ongoing voice phishing case. In other words, it’s basically the same as a foreign exchange that has a local office but does not accept Korean won. As of 1:30 p.m. on Thursday, the bitcoin price traded at Korbit is worth approximately 12.7 million won. This is around 10 percent lower than the trading price at Upbeat and Bithumb. Korbit users can continue to trade but a massive breakaway seems inevitable. For local traders, there’s no reason to use a local exchange that does not accept Korean won. If Shinhan Bank really does cancel the contract, Korbit’s business will be in jeopardy. To continue operating, it may have to turn to using a beehive account. “Canceling the contract means telling us to go down. We’re working harder than anybody to make improvements to the system. We need an environment where we can do business normally,” said a source at Korbit. Rani’s note On June 2017, 31,000 pieces of personal information were leaked from the Bithumb exchange. As the incident came to be perceived as a social problem, KB Kookmin Bank, which at the time was providing a virtual account service, halted its business with Bithumb. After that, the exchange started transactions with NH Nonghyup Bank. That year November, KB Kookmin Bank CEO and KB Financial Group Chairman Yoon Jong-kyoo was to finish his term. Industry watchers back then said that in order to ensure Yoon serves consecutive terms, it mattered that the bank didn’t create “noise” that would upset the financial authorities and hence was the reason behind KB’s voluntary decision to cut transactions with Bithumb. Most of the local exchanges that had deposits blocked due to voice phishing recently had virtual accounts at Shinhan Bank. Compared to its peers, Shinhan has been increasingly attentive to voice phishing and scams. A Korbit source said “Shinhan was being stiff.” Whether this stance is a preventive measure to abide to stricter international rules or to guarantee the firm does not upset financial authorities before Shinhan Financial Group Chair Cho Yong-byoung’s term expires in March — only Shinhan Bank will know. But if they tighten their grip on an exchange that is legally doing business, it may bring side effects to the market by increasing illegal or expedient businesses that bypass the law. Who will protect the investors?

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