The Financial Services Commission (FSC) in South Korea has issued a report that outlines its new definition of cryptocurrencies and has also proposed procedures for all token issuers, along with the punishments that should be applicable in the case of non-compliance. The proposed rules could result in onerous regulations for platforms and individuals alike, including those that issue non-fungible tokens (NFTs) that are intended for trading purposes and also decentralized finance projects. The report issued by the FSC on Tuesday outlines the details of all the items that have been proposed under the Act on the Protection of Cryptocurrency Users.
They have now been sent to the National Assembly to be considered. It outlines the rules that token issuers would have to follow for their tokens to be traded on Korean exchanges, along with punishments that have been suggested for those that are deemed to be making undue profits via market manipulation by the FSC, or for trading without disclosing information. The token-issuing businesses that have been addressed in the report include decentralized autonomous organizations, initial coin offering operators, NFT minting services, and some others as well. These entities would be required by the FSC to submit a whitepaper first and get a favorable rating from an authorized token evaluation service.
Next, they would also have to get a legal review of the project completed and provide users with regular business reports. Previously, NFTs had not been recognized as assets by the FSC for the purpose of regulation. However, they decided to change this decision earlier this week. It is also important to note that the South Korean FSC has also classified stablecoins like Tether (USDT) and privacy tokens like Monero to be cryptocurrencies. But, the same criteria is not applicable to central bank digital currencies (CBDCs).
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If any of the entities or individuals do not comply with the rules, they would have to suffer from a penalty, which would include five years in prison, along with three to five times the amount of ‘unfair profit’ they would generate. The term ‘unfair profit’ would be applicable to any profits that are made when the business is operating in non-compliance with the law. These punishments are the same ones that have already been outlined in the Capital Market Act. These new proposals were introduced by the FSC because it believes that the Special Reporting Act has some deficiencies and these could help in protecting the investors more thoroughly.
This act is the legislation that was introduced in South Korea, which had resulted in the closure of most of the crypto exchanges that existed in the country because it had some strict requirements for them to be able to stay open. A well-connected exchange insider of the industry that the proposals were quite positive. They said that once the new law would be passed in the country, it would promote industry development even further and would help in protecting digital investors. South Korea appears to be putting in significant effort for regulating the crypto industry as it continues to grow.