The Financial Supervisory Service (FSS) has emphasized that it is not directly involved in the listing review process. As the Virtual Asset User Protection Act implementation approaches, panic selling has surged among investors.
Financial authorities in South Korea are set to begin a quarterly review of 600 domestic virtual assets next month. This impending review has sparked fear-driven selling among investors. Reports that numerous altcoins might be delisted under new regulations have fueled this panic. On June 18, Upbit reported that prices of roughly half of the coins listed on the KRW market had dropped between 10% and 20% due to the news.
Impact of the Virtual Asset Act
Virtual asset exchanges will soon be required to adhere to new “transaction support best practices” under the Virtual Asset Act. This legislation mandates rigorous review processes to ensure compliance with listing maintenance requirements. The review criteria include formal prerequisites such as the issuing entity’s reliability, user protection measures, technological security, legal compliance, and qualitative factors like business plan revisions and issuance volume.
The Financial Supervisory Service has clarified that while it supported the National Assembly in developing best practices for virtual asset transactions, it does not directly review or approve listings. “The relevant information was ancillary material submitted to the National Assembly when the Virtual Asset Act was enacted,” stated the FSS’s Virtual Asset Supervision Bureau. We participated to support creating best practices, but the exchange and DAXA will make the announcements.”
South Korea Classifies Certain NFTs as Cryptocurrencies
Amid the development, recently, the Financial Services Commission (FSC) of South Korea also introduced new guidelines that categorize specific non-fungible tokens (NFTs) as virtual assets, similar to cryptocurrencies. The regulations, announced on Monday, apply to NFTs that are payable, divisible, and produced in large quantities.
The regulatory action ensures that specific NFTs are subject to the same regulations as traditional cryptocurrencies, providing clarity to the evolving digital asset market. The FSC’s rules specifically target interchangeable NFTs lacking distinctive characteristics, responding to their increasing use in ways that resemble cryptocurrencies.
Unlike a broad regulatory framework, the FSC has opted to classify NFT collections individually, indicating a customized approach to regulation. This decision acknowledges the diverse uses of digital tokens and aims to create a more stable and regulated NFT marketplace, offering more direction for investors and creators.
This announcement precedes the implementation of the Virtual Asset User Protection Act, South Korea’s comprehensive cryptocurrency law, which will take effect on July 19, 2024. The law mandates crypto service providers safeguard user funds, primarily through cold storage, and participate in insurance programs to ensure user compensation in case of security breaches.
Crypto.com Postpones South Korea App Launch Due to Regulatory Review
In addition to the recent scrutiny activities of Crypto, a few days ago, the anticipated launch of Crypto.com’s app in South Korea was postponed due to a regulatory review of the exchange’s anti-money laundering (AML) procedures. According to a local media outlet, Segye Ilbo, Korean financial regulators have initiated an urgent on-site assessment of the cryptocurrency exchange.
The Financial Intelligence Unit under the Financial Services Commission conducted the assessment after identifying AML issues in Crypto.com’s data. In response to a Coindesk report, Crypto.com emphasized its commitment to maintaining the highest standards of AML protocols. The company stated that it is delaying the app launch to ensure Korean regulators are fully informed about its policies, procedures, systems, and controls.
Crypto.com plans to release a local mobile application that enables cryptocurrency trading and offers affordable pricing and support for various virtual asset transactions. The exchange received authorization to operate in South Korea in 2022, but regulatory challenges have persisted.
Crypto.com announced its decision to launch the new app, describing it as a customized trading platform designed for the Korean market. Chief Operating Officer Eric Anziani highlighted Korea’s tech-savvy population and its embrace of innovation as key factors motivating this move.
Anziani stated: “The Crypto.com app, our most well-known product worldwide, is the first product we will launch in Korea. It’s a fully mobile solution gives Korean consumers controlled access to worldwide prices by providing a practical and secure means to purchase, sell, and store digital assets, including non-fungible tokens.”
Crypto.com also aims to support Korean artists and creators through potential collaborations, leveraging Korea’s status as a cultural superpower. The company plans to establish partnerships with local banks for account verification, a requirement mandated by Korean regulations.
An Overview Of South Korea’s Cryptocurrency Laws
Cryptocurrencies are allowed in South Korea but are subject to strict securities and anti-money laundering laws. However, Bitcoins are not accepted as forms of payment. Exchanges must adhere to licensing requirements for VASPs and abide by specific rules to conduct lawful business in South Korea.
In November 2023, South Korea took significant steps to regulate the cryptocurrency market by implementing the Digital Asset Basic Act (DABA) in June 2024. The aim is to balance investor protection, including exchange capital reserves, with blockchain innovation.
A key development in South Korea’s digital asset custody scene is Shinhan Bank’s investment in Korea Digital Asset Custody Co. (KDAC). This move signifies the bank’s commitment to the evolving digital asset landscape.
In response to the growing popularity of digital currencies, South Korea is updating its tax laws on cryptocurrencies, addressing capital gains tax on investments and value-added tax on transactions. This indicates a shift towards a more organized digital asset governance.
In August 2022, a public-private task committee was established to create a more comprehensive regulatory framework. This resulted in the legislative subcommittee of the National Policy Committee passing crucial measures on April 25, 2023. An extensive legislative bill integrating nineteen pending bills was passed on June 30, 2023.
The South Korean government regulates the cryptocurrency market, introducing securities laws and anti-money laundering (AML) rules governed by the FSC. This shift from observation to active regulation marks a paradigm change in policy.
In South Korea, purchasing cryptocurrency is feasible, and the existing regulatory system emphasizes market stability and investor protection. Exchanges must register with the FSC and adhere to stringent AML regulations, guided by the Electronic Financial Transactions Act and the Act on Reporting and Use of Specific Financial Information.
The Act outlines several safeguards, including separating client transaction deposits, substantial storage in cold wallets, maintaining transaction records for fifteen years, and having insurance or reserves for contingencies.
The Act prohibits fraudulent activities, mandates VASPs to monitor unusual activity, and requires reporting suspicious transactions to authorities. The FSC has the authority to impose severe penalties, including fines and jail sentences, on unfair practices and to confiscate illegally obtained profits.
