By George Ward
Implementing New Crypto Interest Policy
South Korea’s Financial Services Commission (FSC) has issued a notice showing that digital asset investors can receive interest when depositing funds into an exchange. According to the FSC, the new mandate will be effective by July 2024.
However, non-fungible tokens (NFTs) and central bank digital currencies (CBDCs) are exempt from these new guidelines. Per reports from local media outlets, the regulator intends to issue legislative guidance on this recent move.
In addition, the FSC also stated that there may be exceptions to the NFT exclusion. If the tokens are NFTs but function as a payment method and are issued in large quantities, they may be considered virtual assets under the law.
Hence, when holders purchase such tokens and deposit them into exchanges, they may be eligible for interest. The move is a step toward ensuring greater transparency and security in the South Korean digital asset space.
The FSC’s nuanced approach recognizes the diverse nature of these assets, allowing for classification flexibility based on their purpose and circulation volume. More importantly, the FSC establishes these guidelines to balance innovation and investor protection.
It highlights the regulator’s innovative approach to adapting to the dynamic landscape of digital finance while maintaining stability and fairness for investors interacting in the digital finance landscape.
Separating User And Company’s Deposits
Meanwhile, a recent South Korean regulator’s notice states that exchanges must separate user deposits from their assets and deposit them in a bank. Furthermore, a substantial portion of the coins must be securely stored in a cold wallet to enhance the security measures for user funds.
In addition to these deposit protocols, the upcoming guidance will detail specific requirements for strengthening defenses against potential hacks or computer-related breaches. The regulator emphasizes that virtual asset service providers must obtain insurance or set aside reserves to protect themselves against such threats.
Regulatory Moves
South Korea’s grip on cryptocurrency has been tighter in recent months. Last week, the Digital Asset Exchange Association and South Korea’s Financial Intelligence Unit urged users to report unlicensed crypto exchanges operating in the country.
This action is part of the government’s efforts to create a regulatory framework for digital assets while ensuring transaction transparency, market discipline, and user protection. Crypto assets are not recognized as legal tender by South Korean authorities, but they do not prohibit their use.
The government’s emphasis on security and compliance is evident in measures such as the restriction on trading to real-name bank accounts, which it implemented in 2018. Furthermore, the regulatory landscape in South Korea has changed significantly.
For instance, crypto service providers must redesign their AML/KYC systems, register with financial regulators, and implement expanded AML/KYC procedures, among other changes. By officially legalizing cryptocurrencies and mandating specific compliance measures, the March 2020 Amendment signified a landmark milestone.
This amendment broadened AML/CTF rules to include virtual asset service providers (VASPs), such as crypto exchanges and custodian wallet providers. Therefore, understanding South Korean crypto regulations is critical for traders and businesses operating in the country’s crypto ecosystem.