South Korea’s Financial Services Commission (FSC) released a report outlining its new definition of cryptocurrencies, along with proposed procedures for token issuers and penalties for non-compliance.
The rules discussed could impose onerous regulations on individuals or platforms that make non-artistic NFTs for commerce, as well as decentralized funding projects, among others.
The FSC’s Nov. 23 report details the elements proposed in the Cryptocurrency User Protection Act that has been forwarded to the National Assembly for review.
It sets out rules for token issuers who want their tokens to be traded on Korean stock exchanges and proposes sanctions for those the FSC considers making “unwarranted profits by manipulating the market or trading on undisclosed information.”
The report first discusses token issuing companies, which include ICOs, Decentralized Autonomous Organizations (DAOs), and Non-Fungible Token Striking (NFT) services (and potentially others.)
The FSC would require these entities to submit a white paper, obtain a favorable rating from a recognized token assessment service, obtain a legal review of the project, and disclose regular business reports to users.
Previously, the FSC had not recognized NFTs as assets to be regulated, but that decision changed earlier this week. It also considers privacy tokens, such as Monero (XMR) and stablecoins such as Tether (USDT) as cryptocurrencies, unlike central bank digital currencies (CBDCs).
Related: Conflicting messages over crypto tax rules create confusion in South Korea
Failure to comply with the rules would result in a sentence of at least 5 years in prison plus three to five times the amount of “unfair profit” made. Unfair profit would be considered any profit made while companies did not follow the law. These sanctions echo those of the current capital market law.
The new proposals are in response to what the FSC has assessed as shortcomings in the ability of the Special Reporting Act to fully protect investors. The law is the legislation that led to the shutdown of most of the country’s crypto exchanges due to strict requirements to remain in business.
A well-connected forex industry insider told TNZT the proposals were positive:
“The new law, once passed, will further promote the development of the industry and help protect investors in digital assets. “