South Korea’s Financial Services Commission (FSC) released a report outlining the new definition of cryptocurrencies. It also proposes procedures for token issuers and penalties for non-compliance.
Tightened Rules for the South Korean Crypto Industry
The proposed rules could impose tough regulations on individuals or platforms generating non-artificial non-fungible tokens (NFT) intended for trading, as well as decentralized financial projects among others.
The FSC’s report details items it has proposed in the cryptocurrency user protection law sent to the National Assembly for consideration.
It contains rules for token issuers who wish to have their tokens traded on Korean exchanges. It also proposes penalties for those who, according to the FSC, “make improper profits through market manipulation or trading on undisclosed information.”
The report focuses first on token-issuing companies. These include initial coin operators, decentralized autonomous organizations, NFT coin services, and possibly others.
The FSC would require these entities to submit a white paper. Also, they must receive a favorable rating from an accredited token evaluation service. Furthermore, they must obtain a legal assessment of the project and provide regular business reports to users.
Previously, the FSC had not recognized NFTs as regulated assets, but that decision changed earlier this week. It also considers privacy tokens such as Monero (XMR) and stablecoins such as Tether (USDT) as cryptocurrencies, while central bank digital currencies are excluded.
Failure to comply with the rules would result in a penalty of at least five years in prison. In addition, a fine three to five times the amount of the “unfair profit” made. Unfair profit would be considered any profit made while the companies were not complying with the law. These penalties are in line with those of the existing Capital Market Act.
The new proposals come in response to what the FSC has assessed as deficiencies in the Special Reporting Act’s ability to comprehensively protect investors. The act is the legislation that has led to the closure of most crypto exchanges in the country due to strict requirements to remain in business.
An exchange industry insider told Cointelegraph that the proposals were good news:
“The new law, once passed, will further promote industry development and help protect investors in digital assets.”