The Financial Services Commission (FSC) in South Korea recently issued a notice outlining new regulations set to take effect by July 2024, requiring digital asset investors to earn interest on funds deposited into exchanges. However, the guidelines explicitly exclude non-fungible tokens (NFTs) and central bank digital currencies (CBDCs) from this law's scope.
According to reports on December 10, the FSC aimed to provide legislative guidance on this matter. Despite the exemption of NFTs, regulators acknowledged potential exceptions. Even if these tokens are categorized as NFTs, there's a chance they could be considered within the virtual asset classification, especially if they function as a payment method and are in wide circulation. Under such circumstances, these assets might become eligible for earning interest when deposited onto the exchange.
Alongside the categorization of virtual assets, South Korean regulators also detailed guidelines on how virtual asset operators should handle user deposits. The notice highlights the imperative for exchanges to segregate user deposits from their own assets and secure them in banks. Furthermore, it mandates that 80% of the coins must be stored in cold wallets. Additionally, the guidance encompasses requirements for preparing against hackers or other cyber incidents, mandating that virtual asset service providers engage in insurance or establish reserves. Simultaneously, the law prohibits the blocking of deposits or withdrawals unless deemed absolutely necessary and mandated by courts or financial regulators.
South Korea has been increasingly tightening regulations in the cryptocurrency space. Early in December, the country's financial regulator urged users to report unlicensed cryptocurrency exchanges operating within the region. This initiative is being led by the Digital Asset Exchange Association in collaboration with the Korean Financial Intelligence Unit.
