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November 28, 2021

Tough Rules Proposed by South Korea Regulator

A report was released recently by South Korea’s Financial Services Commission (FSC), relating to crypto investment in South Korea. This report outlined a new definition of cryptocurrencies. It also offered new procedures for token issuers and punishments for those that do not comply.

Implications of these New Rules by South Korea

These new stern rules once imposed will regulate individuals and platforms that mint non-art NFTs (nonfungible tokens) meant for trading purposes. These rules would also apply to decentralized finance as well as other types of cryptocurrency projects.

This report by the FSC gives more information on aspects it tabled in the act on the Protection of Cryptocurrency Users. This act has been sent to the National Assembly for discussion.

What has been proposed?

This newly proposed legislation offers rules for token issuers who intend on having their tokens traded on Korean exchanges. It also offers punishments for those that may trespass against these rules by manipulating the market or trading with undisclosed information.

Who does the report address?

Initially, the report addresses businesses that issue crypto-tokens. It includes those that provide initial coin offering operators, DAOs (decentralized autonomous organizations), NFT minting services, and possibly other service providers in the crypto sector.

Requirements by the FSC

The South Korean regulator will require these legal entities to remit a white paper and earn favorable ratings from a reputable token evaluation service. The entities would also have to get their project legally reviewed and disclose regular business reports to their users.

Before these changes, the FSC did not consider nonfungible tokens as assets that required regulating. However, that decision was overturned recently. More assets that are now going to be regulated include privacy tokens and stablecoins. An example of a privacy token includes Monera. Tether is an example of a stablecoin.

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What is the cost of non-compliance?

Legal entities that do not comply with this rule would have to shoulder a penalty for their transgression. This penalty could carry a minimum of 5 years in prison. Convicted offenders would also have to pay up 3 to 5 times the value of the profits made during their criminal activities or non-compliance with these laws. These laws are not new in and of themselves. They resemble those from the Capital Market Act that are already applied.

Why are these new laws being established?

The FSC made evaluations and determined that there existed problems in the current laws, in particular the Special Reporting Act. This law appeared to not protect investors as well as it should. This law eventually caused numerous exchanges in South Korea to close shop because most exchanges failed to comply. This was because these laws were tough.

Commentators believe that this new law is a positive development. It is likely to lead to safer business for investors in digital assets and help the industry develop.

About South Korea

South Korea is located on the Southern part of the Korean Peninsula. The country’s neighbors include North Korea, the Sea of Japan, and the Yellow Sea. South Korea has a population of 51.6 million people. The urban populations are booming, with Seoul being the biggest. This country’s economy has grown astonishingly since the 1960s. From then to the present day, this nation has managed to move from being a developing country to one of the world’s most industrialized countries. What helped South Korea accomplish this amazing feat is their development of exportable goods and their large population of highly skilled and educated workforce.

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The country’s government also put in place support structures. The government and its private sectors worked together to develop a strategy of targeting industries to develop. From 1962 to the present that strategy was implemented in a series of economic development plans. The country’s current focus is high-tech industries including information technology. For this reason, regulating crypto seemingly falls in line with the country’s national development plans for economic growth and prosperity.