LIMASSOL, CYPRUS, November 14, 2023 – South Korea’s Financial Supervisory Service (FSS) is looking to establish steps for issuing and distributing cryptocurrencies to enhance the Virtual Asset Users Protection Act passed earlier this year without sufficient regulatory framework.
According to a local media report, the new regulation is expected to be ready by January, create a clear regulatory framework, and bolster supervision and inspection within the virtual asset market before the law enters into force. On October 7th 2023, the South Korean National Assembly Political Affairs committee conducted an audit of the FSS, where authorities are mandated to formulate standards concerning virtual asset listing procedures, internal controls, and issuance and distribution volumes.
Overview
The forthcoming standards will be developed in collaboration with research services commissioned by the National Assembly. The Head of FSS, Lee Bok-Hyeon, responded to the criticism that was implying South Koreans were losing money on crypto “burger coins, Korean slang for foreign-issued crypto that are traded in South Korea”. Lee said, “The coming regulations were being discussed with the Digital Asset eXchange Association (DAXA)”. DAXA is an alliance of South Korea’s major crypto exchanges, Upbit, Bithumb, Korbit, Coinone and Gopax.
Lee emphasised that the law passed in June lacks the comprehensive regulatory measures needed to address the complexities of the rapidly evolving crypto industry. The law established criminal liability for violations; however, Lee mentioned that it did not give his agency sufficient authority. Lee said, “If there is truly an act that amounts to manipulation of distribution volume through staking or unfair disclosure, we will consult with DAXA”. He added, “There are related systems in place in the securities sector for various screenings related to the issuance market, but there are no related systems in place at DAXA or individual exchanges”. To build these regulatory gaps, the National Assembly has called on the Financial Services Commission and the Financial Supervisory Service to devise additional rules and regulations, including legislation.
Standards for Crypto Issuance
The outline for this new virtual asset regulatory system is anticipated to make research service findings public. These findings will leverage international precedents and gather opinions from industry experts and stakeholders to formulate effective regulatory solutions. The results were obtained with the aid of the Seoul National University Industry-Academic Cooperation Foundation. Experts at Bitai Method mentioned that the FSS is in a bid to facilitate the implementation of the Virtual Asset User Protection Act and is set to work closely with the industry to create rules for listing virtual assets and prevent unfair trading practices.
The report revealed that closely monitoring the financial markets’ development, the agency plans to ensure the stable and secure operation of the virtual asset market. Lee emphasised the regulator’s commitment to fostering responsible innovation within the financial industry. Lee noted, “The Financial Supervisory Service is actively supporting responsible innovation in the financial industry. We will create the foundation for a sound virtual asset market”. On July 26 2023, South Korea established an interagency investigation unit to combat crypto crimes with the aim to address the rise in illicit activities in the market.
The Korea Securities Depository announced a business agreement with the Code to encourage issuing and using Legal Entity Identifiers (LEI). The unit comprises 30 investigators from seven government agencies and bodies, including the Financial Supervisory Service, the prosecution, the National Tax Service and the Korea Customs Service. Prosecutor General Lee Won-seok said, “The virtual asset crime syndicate should help the initial virtual asset market not shrink and eliminate risks to settle in place stably”. According to the report, the unit’s primary focus is investigating market players distributing and issuing crypto. The new law introduced penalties, including fines and prison sentences for individuals involved in unfair trading practices concerning digital assets, the utilisation of undisclosed information, market manipulation and illicit transactions.
South Korea’s Crypto Timeline
In 2019, the Republic of Korea created a regulatory sandbox program to develop new products in the financial services, energy and tech sectors. On February 6th 2023, the South Korean regulator provided guidance on digital assets to outline which categories of virtual assets will be considered securities in the nation and governed accordingly.
The Financial Services Commission revealed that digital assets that meet the requirements outlined in the nation’s Capital Markets Act will be treated as securities. The FSC mentioned that this may include tokens that give holders a stake in company operations with the nation’s Capital Markets Law governing cryptocurrencies that fit the definitions of security tokens. On April 25 2023, South Korea passed a new crypto bill to establish digital asset user protection and fair and transparent market practices.
The move by South Korea to establish steps for issuing and distributing cryptocurrencies to enhance the Virtual Asset Users Protection Act shows how committed the regulators are to moving with time and at the same pace as the crypto space. As we wait for the new regulation to take effect next year, South Korea continues to make regulations to ensure clear crypto rules.
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