South Korean Legislature Considers New Licensing Regime for Cryptocurrencies

A report commissioned by South Korea’s federal government has recommended that the country’s crypto industry adopt a licensing system for exchanges and token issuers as a way to protect investors.

The report, published by South Korea's Financial Services Commission (FSC) to the National Assembly, the country's legislature, also called for new regulations to reduce insider trading, pump and dump schemes and wash trading.

The new regulations will be stricter and penalties for non-compliance will be harsher than those in the Capital Market Act, which the South Korean cryptocurrency industry currently complies with.

The "Comparative Analysis of Virtual Property Industry Law" report, obtained exclusively by the Korea Economic Daily on Tuesday, recommends establishing a licensing system for currency issuers such as conducting ICOs and operating cryptocurrency exchanges. Different levels of permits will be issued depending on the risks involved.

Regulating money issuers through a robust licensing regime is said to be the "most desperately needed protection" in today's market. This stance may have been underscored by the untimely market crash triggered by the failure of the Terra project. The project's South Korean founder, Do Kwon, may be called to the South Korean National Assembly to explain what happened.

One of the proposed regulations would force currency issuers to submit a white paper to the FSC about their projects, including details about the company's executives, how it plans to use funds raised through ICOs, and the risks associated with the projects. Updates to the white paper must be submitted at least 7 days before the proposed changes become effective.

Even companies based overseas must abide by the white paper rules if they want their tokens to be traded on Korean exchanges.

Stablecoins were likely on the FSC’s agenda even before last week’s problems with TerraUSD (UST), Dei (DEI) and Tether (USDT). However, there have been proposals to impose requirements on the asset management of stablecoin issuers, which would apply to how they use collateral and how much coins an issuer can mint.

The report also aims to curb the shady trading activities that local exchanges and currency issuers have been accused of over the years. It recommends regulation of insider trading, price manipulation, pump and dump schemes, wash trading and industry-standard transaction fees.

Cointelegraph reported in April that an industry insider admitted in an interview with local media that the provisions of the Capital Markets Act may not be sufficient to properly manage the country’s cryptocurrency industry.

Yoon Seok-yeol was elected South Korea's new president in part because of his desire to learn about the crypto industry. On May 3, he announced that he would push through a bill extending the tax-exempt status of cryptocurrency investment gains until a proper legal framework is in place.

The report revealed on Tuesday could be the beginning of President Yoon’s envisioned framework for the crypto industry.

Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.