The Financial Services Commission [FSC] in South Korea has issued a crucial directive requiring digital asset investors to receive interest on their deposits by July 2024. Notably, this legal mandate excludes nonfungible tokens [NFTs] and central bank digital currencies [CBDCs]. Recent reports from local news sources suggest that certain tokens, classified as NFTs but functioning as a payment method and issued in substantial quantities, may be considered part of the virtual asset category. If included, users could earn interest when depositing these tokens into exchanges.
The notice encompasses guidelines for managing and operating user deposits for virtual asset operators, stipulating the segregation of user deposits from the firms’ assets, which are to be entrusted to banks. A key requirement is that “virtual asset business operators must also store more than 80% of the economic value of users’ virtual assets in cold wallets.”
Crypto business operators in South Korea are also obligated to prepare for hacking and computer accidents by obtaining insurance, participating in mutual aid, or accumulating reserves. More than 5% of the economic value of virtual assets stored in a hot wallet must be insured with a compensation limit or held as a reserve. The prescribed minimum standards are 3 billion won for won market exchanges [facilitating transactions between won and coins] and 500 million won for coin market exchanges [supporting transactions between coins] or wallet/custodian services.
South Korea Regulator Issues Ban On Funds Blocking
Furthermore, the South Korean regulator clarified rules about insider trading in virtual asset businesses that mirror those in the stock market. If important information is disclosed by a virtual asset business on an exchange, it is considered public after a 6-hour period. The directive expressly prohibits blocking users’ deposits and withdrawals, except in cases of computer failure, hacking, or as required by courts, investigative agencies, and financial authorities under applicable laws and regulations.
The directive imposes an obligation to monitor abnormal transactions on virtual asset exchanges. In the event of suspected unfair trade practices, financial authorities must be promptly notified, and if adequately substantiated, the matter must be reported to an investigative agency. The directive expressly forbids virtual asset deposit and management businesses, such as Haru Invest and Delio, from suddenly suspending deposits and withdrawals, a practice that drew controversy in June of the previous year.