South Korean legislature studies a new licensing system for cryptocurrencies

South Korean legislature studies a new licensing system for cryptocurrencies

A report commissioned by the South Korean federal government recommends that the national cryptocurrency sector adopts a licensing system for exchanges and token issuers as a way to protect investors.

The report issued by the Financial Services Commission (FSC) to the National Assembly, the country’s legislative body, also calls for new regulations to mitigate insider trading, pump-and-dump schemes and wash trading.

The new regulations would be stricter, and the sanctions for non-compliance would be harsher than those of the Capital Markets Law, which the cryptocurrency sector currently adheres to..

The report “The Comparative Analysis of the Virtual Property Industry Act,” obtained exclusively by Korea Economic Daily on Tuesday, reveals a recommendation to establish a licensing system that would apply to issuers of coins, such as companies that operate initial coin offerings (ICOs)for its acronym in English) and cryptocurrency exchanges. Different degrees of license would be granted depending on the risk involved.

Regulation of coin issuers through a robust licensing system is seen as the “most urgently needed protection” in today’s market. This position may be underscored by the untimely market crash caused by the collapse of the Terra project, whose South Korean founder, Do Kwon, could be called to appear before the National Assembly to explain what happened.

One of the recommended standards would oblige coin issuers to submit to the FSC a white paper on their project that includes details about the directors of the company, how they plan to use the funds raised through an ICO and what risks are associated with the project. Updates to the white paper would have to be submitted at least seven days before the proposed changes could take effect.

Even foreign-based companies that want their tokens to be traded on Korean exchanges will have to comply with the white paper standard.

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The FSC likely had stablecoins on its agenda long before issues emerged last week for TerraUSD (UST), Dei (DEI) and Tether (USDT). Nevertheless, there are recommendations to impose asset management requirements on stablecoin issuers that would apply to how they use collateral and how many coins an issuer can mint.

The report also seeks curb shady trading activities that local exchanges and coin issuers have been accused of for years. It suggests regulations on insider trading, price manipulation, pump-and-dump schemes, laundering, and industry-standard transaction fees.

Cointelegraph reported in April that a person in the industry speaking to local media acknowledged that the provisions of the Capital Markets Law might not be adequate to properly govern the cryptocurrency sector.

South Korea’s new president, Yoon Seok Yeol, was elected in part because of his efforts to understand the crypto industry.. On May 3, he stated that his regime would push for a bill that extends the tax-exempt status of cryptocurrency investment earnings until a proper legal framework is in place.

The report released today could be the beginning of the legal framework President Yoon had in mind for the crypto industry.

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