South Korean government proposes strict new rules for crypto token issuers
Financial Services Commission (FSC) of South Korea has issued a report that outlines its new definition of cryptocurrencies, alongside a list of proposed procedures for token issuers and punishments in cases of non-compliance.
The mooted rules have the potentials of imposing onerous regulations on individuals as well as platforms that mint non-art NFT’s, primarily intended for trading and decentralized finance projects, among others.
The November 23 report laid out by the FSC also has detailed items that it proposed in the Act on the Protection of Cryptocurrency Users. All of these have been sent to the National Assembly for approval.
The proposal lays down rules for token issuers who are looking to have their tokens traded on Korean exchanges, as well as it suggests punishments for those the FSC has deemed to be making “undue profit” by the process of market manipulation or “trading on undisclosed information.”
The report initially addresses token-issuing businesses, including ICO operators, Decentralized Autonomous Organizations (DAO), and nonfungible token (NFT) minting services (and various others).
The FSC would now require the entities to submit a white paper, obtain a considerable rating from a recognized token evaluation service, and get a legal review of the project along with disclosing their regular business reports to users.
Previously, the FSC did not recognize NFTs as assets that can be regulated, but that decision has changed earlier this week. Meanwhile, it considers privacy tokens like Monero (XMR), and stablecoins like Tether (USDT) to be cryptocurrencies, whereas central bank digital currencies (CBDC) are not.
Failure in compliance with any of the rules would accompany the penalty of at least five years in prison in addition to three to five times the amount of “unfair profit” made. Unfair profit would be added as any profit that is made while the businesses were in non-compliance with the law. These punishments are very similar to those in the existing Capital Market Act.
The new proposals come in response to what the FSC has evaluated as being deficiencies in the ability of the Special Reporting Act to thoroughly protecting the investors. The Act is the legislation that had led to the closure of most of the country’s crypto exchanges owing to strict requirements to remain functional.