Hyperithm, a crypto asset management firm, has decided to hand back its virtual asset service provider (VASP) license in South Korea, concluding that it cannot build a viable revenue model while rules allowing corporate crypto investment remain on hold and legislation on digital assets keeps slipping. With regulatory requirements on licensed operators tightening at the same time, industry officials expect more firms to follow.
Hyperithm has decided to voluntarily withdraw the VASP renewal filing it recently submitted to the Korea Financial Intelligence Unit (KoFIU) under the Financial Services Commission and is carrying out the related procedures, according to financial industry sources on the 14th. The firm runs crypto funds for institutional investors and ultra-high-net-worth clients from bases including South Korea, Japan and Hong Kong. Its assets under management stood at about 750 billion won ($540 million) at the end of last year.
"After our VASP filing was accepted, we were unable to launch services for users here," said Hyperithm Chief Executive Oh Sang-rok. "We reviewed our business plan and decided to withdraw the renewal filing, and we are going through the related procedures."
Hyperithm's removal from the list leaves 28 licensed VASPs in South Korea. The number stood at 42 in early last year but fell sharply to 27 within 12 months as a string of firms gave up on renewal filings or let their registrations expire amid worsening profitability and weak business. It then rose to 29 at the end of August after new filings by AhnLab Blockchain Company and BitGo Korea were accepted, only to drop again a month later. That amounts to a decline of one-third from early last year.
Industry officials point to the harsh operating environment for South Korea's digital asset sector. With corporate participation in the market restricted, firms find it hard to secure stable revenue in areas such as asset management, custody and settlement, outside of exchanges serving individual investors. The Financial Services Commission said in February last year that it would allow listed companies and corporations registered as professional investors to trade crypto from the second half of that year, but it has not even produced guidelines in the year and a half since.
Smaller operators, meanwhile, are under growing financial strain. Wallet and custody firms posted a combined operating loss of 18.6 billion won in the first half of this year, double the 9.3 billion won loss in the second half of last year.
Compliance costs, by contrast, are rising. Under the revised Act on Reporting and Using Specified Financial Transaction Information, which took effect in August, existing VASPs must refile by Nov. 20 to meet new requirements. The rules introduce eligibility screening for major shareholders, cap debt-to-equity ratios at 200% and tighten internal control requirements covering anti-money laundering staffing, organization and IT systems. The delay in enacting a framework law on digital assets is adding to the uncertainty.
While South Korea's rulemaking lags, other countries are moving faster to bring crypto into the regulated system. Even Russia, which has long taken a hard line on crypto trading, recently allowed banks to offer crypto trading services. Sberbank, Russia's largest bank, plans to launch such services in December. "Here, there is not much business you can do even with VASP status," said the head of one crypto firm. "At the same time, the administrative workload is considerable, including responding to data requests from financial regulators, so more firms could leave."