The Financial Services Commission (FSC) in South Korea has announced that digital asset investors will receive interest on their deposits in local exchanges by July 2024. However, this benefit does not apply to non-fungible tokens (NFTs) and central bank digital currencies (CBDCs). The FSC plans to release legislative guidance to enforce this requirement, excluding NFTs and CBDCs from the law.
NFTs and CBDCs Excluded from Interest Benefits
In July 2024, investors in virtual assets will receive interest for depositing money into crypto exchanges, according to an FSC notice. However, NFTs and CBDCs are not eligible for this benefit. The FSC will implement the “Enforcement Decree and Supervisions Regulations of the Virtual Asset User Protection Act” to define these rules. NFTs and CBDCs are outside the scope of the law, but some exceptions apply to NFT tokens that function as payment methods and are issued in large numbers.
Exchanges to Separate User Deposits
Virtual asset operators must separate user deposits from their own assets, as mandated by the FSC. Moreover, exchanges are required to entrust user deposits to a bank and store 80% of the coins’ economic value in a cold wallet for enhanced security. This is to address vulnerabilities and hacking incidents that often occur with hot wallets.
Mitigating the Risks of Hacks
The FSC introduced measures to address hacking and cyber vulnerabilities in the virtual asset sector. Virtual asset operators are required to acquire insurance, sign up for mutual aid, or accumulate reserves. Over 5% of the economic value of virtual assets in hot wallets must be insured or reserved as a compensation limit. Blocking user deposits and withdrawals is prohibited, except in cases of hacking or cyber vulnerability, and only when authorized by the courts, investigative agencies, and financial regulators.
South Korea Further Clarifies Regulation On Virtual Assets
In addition to the new interest mandate, the FSC has proposed draft rules that will require companies holding or issuing cryptocurrencies to disclose their holdings in financial statements from 2024. Domestic companies will also need to disclose information about profits, book value, and the estimated market value of their crypto holdings. The FSC aims to bring absolute clarity to virtual asset regulations in South Korea.
Hot Take: South Korea Implements Interest for Digital Asset Deposits
The Financial Services Commission in South Korea has announced that digital asset investors will receive interest on their deposits in local exchanges starting from July 2024. This move aims to encourage more people to invest in virtual assets and promote the growth of the crypto industry. However, the exclusion of non-fungible tokens (NFTs) and central bank digital currencies (CBDCs) from this benefit raises questions about their regulatory status. As the crypto market continues to evolve, it is important for regulators to adapt and provide clear guidelines to protect investors and ensure the stability of the financial system.
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