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South Korea Sets Interest Rules for Crypto Exchanges by 2024

2023.12.13

 

Key Takeaways

  • By July 2024, crypto investors in South Korea will begin earning interest on deposits.
  • NFTs and CBDCs excluded, with specific conditions for certain NFTs.

New Regulatory Framework for Crypto Assets

The Financial Services Commission (FSC) of South Korea has announced groundbreaking regulations for digital assets, set to be implemented by July 2024. This move is a significant step in regulating cryptocurrency exchanges and digital asset investments in the country. The FSC’s notice clarified that investors holding digital assets on exchanges will be eligible to receive interest on their deposits.

Exclusions and Exceptions in the Legislation

Interestingly, the FSC’s guidance explicitly excludes nonfungible tokens (NFTs) and central bank digital currencies (CBDCs) from this regulation. However, there are notable exceptions. If tokens, though classified as NFTs, are used as a payment method and issued in large quantities, they could fall under the ‘virtual asset’ category. In such cases, these tokens would be eligible for interest when deposited into exchanges.

Regulations on User Deposits and Asset Management

The notice also outlines crucial protocols for virtual asset operators regarding the handling of user deposits. It mandates that exchanges must keep user deposits separate from their own funds and entrust them to a bank. Moreover, a significant portion, specifically 80%, of the coins, must be stored securely in cold wallets.

Precautionary Measures and Restrictions

In addition to these regulations, the FSC’s guidance encompasses provisions for dealing with cybersecurity incidents. Virtual asset service providers are required to have insurance or accumulate reserves as a safeguard against potential hacks. Additionally, the law restricts exchanges from blocking deposits or withdrawals unless under exceptional circumstances, such as court or regulatory body orders.

Strengthening Crypto Regulations in South Korea

These developments are part of South Korea’s broader efforts to solidify regulations in the cryptocurrency space. Earlier in December, financial regulators in the country urged the public to report any unlicensed crypto exchanges operating within South Korea. The Digital Asset Exchange Association, in collaboration with the Financial Intelligence Unit of South Korea, spearheads this initiative to regulate and monitor the crypto market effectively.

 


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