The South Korean regulator, the Financial Services Commission (FSC), recently issued a notice emphasizing the importance of investors in #digital assets receiving interest on their funds deposited on exchanges by July 2024. This move aims to protect investors and promote transparency in the rapidly growing digital asset market.
However, it's worth noting that the notice excludes non-fungible tokens (#NFTs) and central bank digital currencies (CBDCs) from the requirement. While NFTs and #CBDCs are not covered by this specific law, the FSC acknowledges that exceptions may be made in certain cases.
According to the report, even if tokens fall under the category of NFTs but function as a means of payment and are issued in large quantities, they may be included in the classification of virtual assets. In such cases, these assets potentially have the right to earn interest when deposited on exchanges.
In addition to the classification of virtual assets, the South Korean regulator has also defined a method for handling user deposits for virtual asset operators. The notice emphasizes that exchanges must separate user deposits from their own assets and transfer them to a bank. Furthermore, it stipulates that 80% of the coins must be stored in cold wallets for enhanced security.
The guidance also includes requirements for preparedness against hacking or other computer incidents. Virtual asset service providers are required to subscribe to insurance or accumulate reserves, ensuring that they can cover potential losses in the event of a security breach. However, the law also prohibits blocking deposits or withdrawals, except in cases where it is absolutely necessary and upon the request of courts and financial regulators.
South Korea is tightening its regulations in the cryptocurrency space to safeguard investors and maintain the integrity of the market. Earlier this month, the country's financial regulators urged users to report unlicensed cryptocurrency exchanges operating in the region. This initiative was led by the Digital Asset Exchange Association (DAXA) and the Financial Intelligence Unit of #South Korea.
In conclusion, the recent notice from the South Korean regulator highlights the importance of investor protection and transparency in the digital asset market. By requiring exchanges to provide interest on deposited funds and implementing measures to enhance security and compliance, the FSC aims to foster a safer and more regulated environment for digital asset investments in the country.
