Bolstering Investor Protection: South Korea Requires Interest Payments on Crypto Deposits
To enhance investor protection and promote transparency, South Korea’s Financial Services Commission (FSC) has issued a notice stating that crypto investors must receive interest on their deposits when using exchanges. These new rules, part of the “Enforcement Decree and Supervision Regulations of the Virtual Asset User Protection Act,” will come into effect in July 2024.
Financial Institutions to Pay Interest on Crypto Deposits
Under the revised regulations, investors in crypto assets will be entitled to interest payments on their deposited funds. However, non-fungible tokens (NFTs) and deposit tokens linked to central bank digital currency (CBDC) will not fall under this law’s coverage.
Banks serving as intermediaries for crypto exchanges will be required to pay interest on user deposits made through the exchanges. This measure aims to protect user funds and allow investors to earn returns on their capital.
Enhanced Security Measures for Crypto Operators
To enhance security and mitigate risks, crypto asset operators must store over 80% of users’ virtual assets’ economic value in cold wallets. Additionally, these operators must obtain insurance coverage or establish mutual aid programs due to potential hacking incidents. They are also required to insure or accumulate reserves amounting to more than 5% of the economic value of virtual assets stored in hot wallets.
The minimum standards set for exchanges in the won market are 3 billion won ($2.6 million), while coin market exchanges or wallet/custodian services have a minimum requirement of 500 million won ($433,000).
Strengthened Controls Against Insider Trading
The new regulations address concerns related to insider trading by specifying that important information shared by digital asset businesses on exchanges will be considered public knowledge after a six-hour disclosure period. Blocking users’ deposits and withdrawals will be prohibited in principle, with exceptions made in cases of computer failures, hacking incidents, or when requested by courts, investigative agencies, or financial authorities.
Crypto exchanges must also monitor and report any abnormal transactions and promptly notify financial authorities of suspected unfair trade practices. This measure aims to prevent market manipulation and ensure a fair trading environment for investors.
Hot Take: Fostering Trust and Responsible Growth
The comprehensive regulatory framework introduced by the FSC aims to establish a robust and secure environment for digital asset investors in South Korea. By introducing interest payments on deposits and implementing enhanced oversight measures, the FSC seeks to foster trust, protect user funds, and promote the responsible growth of the cryptocurrency market in its early stages.
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