The lawmakers of South Korea have made peace with the idea that cryptocurrencies and other digital assets are here to stay. Thus, they need a set of crypto regulations to handle this new investment sector.
Yoon Suk-Yeol, the president of South Korea, addressed the need for new laws during his top job campaign. The FSC (Financial Services Commission) also supports this need for crypto laws for handling risks in digital assets trading. In this effect, South Korea will likely enforce Digital Asset Basic Act in the first half of 2023.
Kim Joo-Hyun, the chairman of FSC, told the country's National Assembly, "There's anticipation that virtual assets will accelerate financial innovation but also concerns that they pose risks to investor protection and market stability… [The FSC] will actively participate in the legislation so that the virtual asset market can grow responsibly based on investor trust".
The government informed the media that it would refer to the crypto regulations from other countries while forming its legislation. They specifically mentioned the reports that various executive branches of the US will issue in October, following president Joe Biden's executive order on digital assets.
Currently, the South Korean crypto laws are an amendment to The Act on Reporting and Use of Certain Financial Transaction Information. It was implemented in September 2021 to reduce the risks of money laundering, embezzlement, and price manipulation.
The coming Digital Asset Basic Act will originate from 13 proposals that will be debated in the National Assembly. President Yoon Suk-Yeol stated that he would classify cryptocurrencies in two ways- tokens resembling securities and non-securities.
While the former will be regulated under the existing Capital Markets Act, the latter will be governed under the new Basic Act. This would provide better safeguards to investors.
The focal point of proposals for the Basic Act is the administration of VASP (virtual asset service providers). Most bills were proposed last year, but the domestic crypto project Terra-LUNA collapsed during the review. Due to this, around 280,000 local investors have been estimated to have lost money.
After this, the focus of the Act shifted to management of the issuing and listing of cryptocurrencies and better protection clauses for investors.
"First of all, (setting) a standard for crypto projects and exchanges in issuing and listing the token," said Kang at the Korea Digital Asset Service Provider Association. "What will follow is [regulation] on disclosure that would be the basis of investors making investment decisions." He mentioned that the crypto listing, delisting, and information disclosure standards are still blurry.
Kim Hyoung-Joong, Korea Fintech Society's president, said in an interview that enforcing a strict and robust standard would offer clarity for both investors and businesses. He mentioned, "[Companies] worry about launching new services only to be disapproved by the FSC, or even penalized,… So there needs to be a safety net that could eliminate those [fears]."
He also stated that apart from the need for the basic standards to safeguard investors, South Korea should also consider adopting a regulatory framework to assist innovative projects like Sandbox to flourish.