Crypto Deposits on Exchanges in South Korea to Receive Interest, NFTs and CBDCs Excluded

Continuing its march to a robust crypto environment, the South Korean Financial Services Commission (FSC) is scheduled to release a guidance that will see investors earn interest on their crypto deposits.

High Volume NFTs Not Impacted

In a December 10 report from a local media outlet, the South Korean regulatory agency, the Financial Services Commission (FSC), is set to release new guidance regarding its virtual asset supervisory framework. This will be contained in its Enforcement Decree and Supervision Regulations of the Virtual Asset User Protection Act.

Sharing some of the expected changes, the report states that the FSC is now mandating crypto exchanges to pay users a variable amount in interest when they deposit digital assets in their platforms. This law is scheduled for launch by July 2024, according to the guidance shared by the FSC.

However, non-fungible tokens (NFTs) and central bank digital currencies (CBDCs) are missing from this list. NFTs are blockchain-based digital collectibles that depict ownership on any distributed ledger platform. While they can be owned, they are not fungible and cannot be swapped on a 1:1 basis like other fungible assets like Bitcoin and Ether.

On the other hand, CBDCs are state-backed tokenized fiat currencies operating on the blockchain. While CBDCs are still in inception, many world governments are closely working on a tokenized version of their national exchange medium to meet the decentralized value ecosystem.

In addition, the report shows an exemption window the FSC is putting for NFTs. According to the top financial watchdog, only NFTs that are traded in large quantities and can be used as a payment medium for services rendered will be eligible to receive interest from crypto exchanges in the region when deposited.

Looking to stem issues around the commingling of users’ assets and exchanges, the FSC has requested that all assets should be segregated. Hence, customers’ assets and the exchange’s funds should be kept separately, with the customers’ funds being deposited in a bank.

In addition, 80% of all total virtual assets in an exchange’s liquidity pool should be stored using an offline or cold wallet to forestall loss from platform hacks.

Hot Wallet Deposits to Be Insured

The FSC guidance is not only limited to virtual asset custodying. The South Korean regulator has also mandated that all exchanges should insure more than 5% of the economic value of investors’ assets kept in their hot wallets.

This will ensure a sum to fall back on in the event of an exchange hack. Also, the FSC stated that the minimum standard amount should be 3 billion won for transactions supporting both won and coins. On the other hand, 500 million won should be insured for transactions executed between digital assets.

Meanwhile, the FSC has stated that no crypto exchange should block users from making deposits and withdrawals even if the platform is hacked. According to them, the only permissible time is when it is necessary or it is requested by the courts, investigative agencies, or financial authorities in accordance with relevant laws and regulations.

Furthermore, all virtual asset service providers (VASPs) or exchanges are required to report any abnormal transactions on their platforms. According to the FSC, if any unfair trade practice is suspected, the relevant financial authorities should be notified immediately.

The Asian nation is continuing its expansive supervisory undertaking on the emerging industry. On December 4, the Digital Asset Exchange Association (DAXA), in collaboration with the Financial Intelligence Unit (FIU), requested that South Koreans report any unregistered crypto exchange offering services to users in the country.

Providing the rationale behind this decision, the two-agency team stated that it is looking to find domestic and foreign VASPs that operate outside Article 7 of the Special Financial Information Act.