South Korea’s Financial Services Commission (FSC) has introduced stricter guidelines to govern the nation’s crypto ecosystem. Dubbed the ‘Comparative Analysis of the Virtual Property Industry Act, the proposal aims to put measures in place that will foster consumer protection, while also curbing illicit activities by exchanges and coin issuers, reports Hankyung on May 18, 2022.
FSC Submits Fresh Regulatory Proposal
According to a report by local news platform Hankyung, South Korea’s National Assembly Political Affairs Committee mandated the Financial Services Committee (FSC) in November 2021, to carry out extensive research and formulate new rules that would completely curb illicit practices in the country’s crypto industry, while also enhancing consumer protection.
On May 17, 2022, the FSC submitted its recommendations to the National Assembly in a proposal entitled ‘Comparative Analysis of the Virtual Property Industry Act.’
The proposal seeks to introduce more serious punishments for crypto market participants such as exchanges and coin issuers that engage in dirty practices such as market manipulation, wash trading, pump and dump schemes, and more.
“In the future, if you take unfair profits from crypto trading by raising coin prices, insider dumping, and false orders, you will be subject to both civil and administrative sanctions, such as liability for damages and punitive penalties, as well as criminal penalties like fines and imprisonment,” the report reads.
Raising the Bar
The Comparative Analysis of the Virtual Asset Industry Act proposes more serious punishments for rogue actors than what’s stipulated in the Capital Market Act, which currently governs the country’s securities market.
Cryptocurrency issuers will also be required to provide detailed investment information about their projects in the Korean language via an independent disclosure system.
In the wake of the ongoing Terra crisis, the report also buttressed the need for stablecoin and Decentralized finance (DeFi) regulations. In the future, stablecoins that go through significant price dumps will be kicked out of the market. Coin issuers who sell a large amount of coins in their reserves without prior notice will also suffer severe punishments.
Importantly, crypto businesses headquartered overseas but have a presence in South Korea will also adhere to the same guidelines that govern local exchanges The Act also seeks to raise the barrier higher for crypto-related businesses to ensure that only participants with the strongest consumer protection safeguards operate in the region.
Exchanges and coin issuers must also completely disclose the inherent risks of cryptocurrencies to investors and recommend only the crypto assets that best suit the investor’s risk appetite.
“Coin issuers are now required to submit a whitepaper called a securities declaration of cryptocurrency to the authorities at least 20 days before the issuance of the coin. The white paper should contain detailed descriptions of the issuer information, the plan to use the raised funds, and the risks associated with the project,” the report added.
Korean authorities are expected to further deliberate on the proposal and make it part of the Framework Act on Virtual Assets, a regulation that encompasses 13 crypto-related bills proposed to the National Assembly.