South Korea to Reevaluate Over 600 Crypto Listings Under New Law

Key Insights

  • South Korea’s new law mandates re-evaluating 600+ crypto tokens to enhance security and compliance in the crypto market.
  • Major exchanges like Upbit and Bithumb will conduct rigorous token reliability, security, and user protection reviews.
  • Tokens with past security breaches or inadequate disclosure will face stricter scrutiny and potential delisting under new regulations.

South Korea is set to reevaluate the listings of over 600 cryptocurrency tokens on domestic exchanges following the implementation of the Virtual Asset User Protection Act. Effective July 19, the new law aims to tighten the regulatory framework surrounding cryptocurrency transactions in the country. Korean news media Dnews, which cites sources familiar with the matter, reports this move.

Under the new law, South Korea’s financial authorities will require nearly three dozen registered crypto exchanges to establish review committees. These committees will assess various aspects of each token, including the reliability of the issuing entity, user protection measures, technology and security standards, and regulatory compliance. These reviews will be conducted by major exchanges such as Upbit, Bithumb, Coinone, Korbit, and Gopax.

The reviews will evaluate whether to maintain or delist each token and involve continuous assessment. The initial review process will be followed by maintenance reviews every three months. Tokens identified as problematic will be considered exemplary, potentially leading to their delisting if they fail to meet the new standards.

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Criteria for Token Evaluation

The criteria for evaluating tokens are comprehensive, encompassing qualitative and quantitative measures. Factors include the issuer’s capabilities and reputation, past business history, information disclosure, operational transparency, total supply and circulation, market capitalization, and potential conflicts of interest between trading platforms and token holders.

The law also specifies that tokens issued by decentralized autonomous organizations (DAOs) may struggle to meet these requirements. However, tokens traded without issues for over two years in well-regulated markets such as the U.S., U.K., France, Germany, Japan, Hong Kong, Singapore, India, and Australia will be subject to a less stringent review process.

Crypto exchanges will be prohibited from accepting any payments in return for listing a token, ensuring that all listings meet the required standards based on their merits alone.

Focus on User Protection and Security

The new regulations are central to user protection and security. Authorities will examine issuers’ information disclosure practices and verify the cryptocurrency’s circulation. Additionally, they will assess whether an on-chain explorer can track white papers and blockchain activity, enhancing transparency and user confidence.

Technical security standards will also be scrutinized. Cryptocurrencies must have no history of hacking incidents, and issuers must disclose their smart contract source codes. Coins and tokens issued directly by exchanges, those that conceal transaction history, and others that violate current laws will be ineligible for listing.

Continuous Monitoring and Enforcement

The new law mandates continuous monitoring and enforcement to ensure compliance. The Financial Service Commission (FSC) will oversee the process, requiring crypto exchanges to evaluate and report on the status of listed tokens regularly. Exchanges will review each virtual asset every six months, with subsequent reviews every three months to ensure ongoing compliance.

Violations of the new law will attract severe penalties, including fixed-term jail sentences of more than one year or fines ranging from three to five times the amount of illegal profits. These stringent measures aim to foster a more secure and transparent cryptocurrency market in South Korea.

The FSC is also working on additional regulatory guidelines for crypto transactions, which are expected to come into force alongside the Virtual Asset User Protection Act. These guidelines will further enhance the regulatory framework, addressing security breaches and ensuring that compromised projects are not listed on local exchanges.

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In conjunction with these regulatory changes, the FSC is restructuring its organizational framework to manage the cryptocurrency sector better. A new bureau dedicated to virtual assets will be established and tasked with creating and enforcing policies within the industry. A proposal for this bureau was introduced on June 17 and is currently under review.