Investors Beware, South Korea is Tightening Crypto Regulations

Investors Beware, South Korea is Tightening Crypto Regulations

In a landmark move to safeguard its burgeoning cryptocurrency market, South Korea has rolled out stringent new regulations, including round-the-clock real-time monitoring of digital asset transactions. Spearheaded by the Financial Supervisory Service (FSS), this initiative aims to ensure that virtual asset exchanges can smoothly fulfill their legal obligations. The FSS has teamed up with exchanges to draft the ‘Abnormal Transaction Monitoring Guidelines’ and support the establishment and operation of a regular surveillance system for abnormal transactions.

Simultaneously, a consortium of 20 South Korean cryptocurrency exchanges under the Digital Asset Exchange Alliance (DAXA) has embarked on a six-month review of 1,333 digital assets to address concerns about potential mass delistings under these new regulations. This review process is mandated by South Korea’s new investor protection laws, set to take effect on July 19.

The primary motivation behind these regulations is to protect investors and maintain market stability. While the cryptocurrency market offers significant opportunities, it is also fraught with risks, including fraud, market manipulation, and substantial financial losses. By implementing real-time monitoring and stringent review processes, South Korea aims to mitigate these risks and create a safer environment for investors.

The FSS’s guidelines for abnormal transaction monitoring are designed to detect and prevent suspicious activities, such as money laundering and fraud. This proactive approach is crucial in a market where transaction anonymity and decentralization can often obscure illicit activities. By working closely with exchanges, the FSS ensures that these entities have the necessary tools and protocols to promptly identify and address abnormal transactions.

These regulations represent both a challenge and an opportunity for cryptocurrency exchanges. The requirement for 24-hour real-time monitoring and the comprehensive review of digital assets necessitate significant investments in technology and compliance infrastructure. Exchanges must develop and implement sophisticated monitoring systems capable of analyzing vast amounts of transaction data in real-time. This can be a daunting task, particularly for smaller exchanges with limited resources.

On the other hand, these regulations offer an opportunity for exchanges to enhance their credibility and attract more investors. By demonstrating a commitment to security and compliance, exchanges can differentiate themselves in a crowded market and build trust with their users. Moreover, the collaboration between the FSS and exchanges in developing the monitoring guidelines suggests a cooperative approach that could facilitate smoother implementation and compliance.

The introduction of these regulations in South Korea is part of a broader global trend towards increased regulation of the cryptocurrency market. Governments and regulatory bodies worldwide are grappling with the challenges posed by digital assets, seeking to balance the need for innovation with the imperative of protecting investors and maintaining financial stability.

In this context, South Korea’s approach is noteworthy for its comprehensiveness and rigor. The combination of real-time monitoring, abnormal transaction guidelines, and a thorough review of digital assets represents a multi-faceted strategy to address the various risks associated with cryptocurrencies. This could serve as a model for other countries looking to regulate their own cryptocurrency markets.

While the intentions behind these regulations are commendable, there are potential downsides that must be considered. One concern is the risk of overregulation, which could stifle innovation and drive cryptocurrency businesses out of South Korea. The cryptocurrency market thrives on innovation, and excessive regulatory burdens could deter new entrants and stifle the development of new technologies and services.

According to Crystal Intelligence, the landscape of cryptocurrency regulation has shifted globally, with a majority of nations establishing guidelines influenced primarily by anti-money laundering (AML) directives. This regulatory evolution has precipitated a notable rise in operational costs for crypto exchanges. Consequently, such financial pressures have compelled various exchanges to either cease their activities or relocate to jurisdictions with more favorable regulatory climates. This trend is evident in the United States.

Moreover, the requirement for real-time monitoring and comprehensive asset reviews could impose significant costs on exchanges, particularly smaller ones. These costs could be passed on to users in the form of higher fees, potentially making cryptocurrency trading less accessible and attractive in South Korea. However, the benefits in terms of reduced fraud and increased market integrity can be substantial.

The success of South Korea’s new regulations will depend on several factors. First, the effectiveness of the real-time monitoring systems and abnormal transaction guidelines will be crucial. These systems must be capable of accurately detecting and addressing suspicious activities without generating excessive false positives, which could overwhelm exchanges and regulators.

Second, the collaboration between the FSS and exchanges will be key. By working together, regulators and exchanges can ensure that the regulations are implemented smoothly and effectively. This collaborative approach could also help to address any issues or challenges that arise during the implementation process.

Finally, the impact of these regulations on the broader cryptocurrency market will be important to monitor. If the regulations succeed in reducing fraud and increasing market integrity without stifling innovation, they could serve as a model for other countries. However, if the regulations prove to be overly burdensome and drive businesses out of South Korea, this could have negative implications for the country’s position as a hub for cryptocurrency innovation.

South Korea’s regulations are a bold experiment, one with the potential to reshape the global cryptocurrency landscape. If successful, it could usher in a new era of responsible crypto adoption, with robust safeguards for investors and a framework for sustainable growth. However, a misstep could lead to unintended consequences, stifling innovation and fragmenting the market.

The world is watching with bated breath. Will South Korea strike the delicate balance between stability and progress? The answer will determine not just the fate of its own cryptocurrency industry, but also the course of global regulation. This is a test case with far-reaching implications, and its outcome could set the stage for a future where cryptocurrencies become a mainstream financial tool or remain a niche asset class.

The key lies in international cooperation. If regulatory bodies around the world can learn from South Korea’s experience, fostering collaboration between regulators and industry leaders, a global framework for responsible crypto adoption can emerge. This framework would need to be adaptable enough to accommodate innovation while ensuring the safety and security of investors. Only through such collective effort can the potential of cryptocurrencies be fully realized, fostering financial inclusion and a more dynamic global economy. The future of cryptocurrency hinges not just on the success of South Korea’s regulations, but on a global commitment to responsible innovation.

 

Source: https://intpolicydigest.org/investors-beware-south-korea-is-tightening-crypto-regulations/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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Anndy Lian: South Korea’s New Crypto Rules Bring Market Stability

Anndy Lian: South Korea’s New Crypto Rules Bring Market Stability

South Korea is a significant player in cryptocurrency and blockchain adoption — and has a regulatory framework that recognizes this.

One development on this journey is the Virtual Asset User Protection Act, representing South Korea’s first formal attempt to establish legal guidelines for the management and oversight of virtual assets, including cryptocurrencies.

In essence, the Virtual Asset User Protection Act defines virtual assets as digital representations of value that can be electronically traded or transferred and grants authority to the Financial Services Commission (FSC), the primary financial regulator in South Korea, to supervise and regulate the crypto sector effectively.

The regulations, scheduled to take effect on July 19, 2024, are designed to protect user assets and interests, prevent misuse and abuse, enhance transparency and accountability, and promote innovation and development, and we took a closer look during the proposal stage.

We sit down with intergovernmental blockchain expert Anndy Lian for a nuanced take on the new regulations.

Key Takeaways

  • The Virtual Asset User Protection Act marks South Korea’s first formal attempt to establish legal guidelines for managing and overseeing virtual assets, including cryptocurrencies.
  • The regulations take effect on July 19, 2024, aimed at protecting user assets and interests, enhancing transparency and accountability, and promoting innovation and development.
  • They are expected to have significant implications for both South Korea’s virtual asset market and those abroad — but may pose challenges for teams complying with the strict regulatory standards.
  • There is room for future developments, such as smart contract-based services like DeFi, Decentralized Autonomous Organizations (DAOs), and Web3.

Impact of South Korea’s Crypto Regulations

Q: How is the Virtual Asset User Protection Act applied internationally, and what impact could it have on virtual asset service providers outside of Korea?

A: The Act is going to have a significant impact on the virtual asset industry, both in South Korea and abroad.

The primary function of the Act is to protect the South Korean market and its users. I think it fits the purpose.

On one hand, it may enhance the credibility and legitimacy of the virtual asset market, as well as the protection and security of users.

On the other hand, it may also pose challenges and costs for VASPs [virtual asset service providers] to meet the strict regulatory standards and requirements — some VASPs may decide to exit the South Korean market or restrict their services to South Korean users, while others may seek to adapt and innovate to comply with the law.

If you look deeper into the Act, I think it is fair for everyone — this is very similar to traditional finance.

Q: Regarding financial investment services and the Capital Markets Act (FSCMA), could you explain the changes brought about by the Token Security Guidelines? What are the potential implications of these changes on the virtual asset market?

A: The implications of these guidelines are significant for the virtual asset market, as they will enable the issuance and circulation of security tokens within the legal boundaries of the capital market regulations.

This will facilitate the creation and trading of new and diverse rights, such as fractional shares, in the form of security tokens. It will also foster the development of small-scale OTC markets where atypical types of securities can be exchanged.

Moreover, the guidelines will ensure the protection of investors and the maintenance of market order, as security tokens will be subject to the same rules and regulations as traditional securities, such as mandatory disclosure, authorization, and prohibition of unfair trading activities.

I think this is a positive and progressive move by the South Korean authorities, as it will promote innovation and inclusion in the virtual asset market while safeguarding the participants’ interests. I hope other countries will follow suit and adopt similar regulatory frameworks for security tokens.

Strengths and Challenges of South Korea’s Rules

Q: How does the Digital Asset Framework Bill specifically regulate virtual/digital assets, and what are its advantages and challenges?

A: The advantages of this bill are manifold.

First, it will create a more transparent and predictable legal environment for the development and innovation of virtual/digital assets, which will attract more investment and participation from domestic and foreign entities.

Second, it will enhance the credibility and legitimacy of the virtual/digital asset market, which will increase the public trust and acceptance of these new forms of value and exchange.

Third, it will foster the integration and interoperability of virtual/digital assets with the existing financial system, which will enable more efficient and convenient transactions and services for users and businesses.

Fourth, it will contribute to the global leadership and cooperation of South Korea in the virtual/digital asset space, as it will align with the international standards and best practices set by organizations such as the Financial Action Task Force (FATF) and the G2014.

Q: And the challenges…?

A: First, it will require a careful and balanced approach to ensure that the regulation does not stifle the innovation and diversity of the virtual/digital asset market, which is constantly evolving and expanding.

Second, it will demand a high level of coordination and collaboration among various stakeholders, such as regulators, legislators, industry players, experts, and users, to ensure that the bill reflects the needs and interests of all parties involved.

Third, it will entail a continuous monitoring and evaluation of the impact and effectiveness of the regulation, as well as a timely and flexible adjustment of the rules and standards to cope with the rapid changes and challenges in the virtual/digital asset market.

I think this is a very important and timely initiative by the South Korean government, as it will provide a solid foundation and direction for the future of the virtual/digital asset market, which has a huge potential and value for society and the economy.

South Korea’s Digital Future

Q: How will the Virtual Asset User Protection Act contribute to market stability and investor protection? In your view, could it enhance the stability and transparency of the virtual asset market?

A: The Act will also establish a set of rules that virtual asset service providers (VASPs) are required to follow to ensure the protection of users’ assets, such as separating customers’ funds and virtual assets from their own, storing a certain proportion of virtual assets in cold wallets, having insurance or reserves for liability, and maintaining transaction records.

Moreover, the Act will confer the market oversight and sanctions authority to the Financial Services Commission (FSC), which will be able to punish unfair trading activities using virtual assets, such as insider trading, market manipulation, and fraud, with criminal penalties and fines.

I think it brings market stability and provides investor protection in several ways.

First, it will create a more transparent and predictable legal environment for the development and innovation of virtual assets, which will reduce uncertainty and risk for investors and users.

Second, it will enhance the credibility and legitimacy of the virtual asset market, which will increase public trust and confidence in these new forms of value and exchange.

Third, it will foster the integration and interoperability of virtual assets with the existing financial system, which will enable more efficient and convenient transactions and services for users and businesses.

Fourth, it will ensure the protection of users’ rights and interests, as well as the maintenance of market order, by imposing strict standards and obligations on VASPs and enforcing sanctions on violators.

Q: The Financial Services Commission excluded deposit tokens linked to NFTs, electronic bonds, mobile gift certificates, and CBDCs from the law. What do you think are the reasons behind this decision? In your view, does this effectively prevent virtual asset-related crimes?

A: In my view, excluding these types of tokens from the law does not necessarily prevent virtual asset-related crimes but rather clarifies the scope and applicability of the law to the relevant types of tokens that could pose potential risks or challenges to the financial system or the users.

The exclusion is very obvious as it overlaps with existing laws.

For a few examples, electronic bonds are tokens that represent the debt obligations of an issuer, such as a government or a corporation, to pay a fixed amount of interest and principal to the holders of the bonds.

These tokens are not considered virtual assets under the law because they are already regulated as securities under the existing capital market regulations and do not pose any additional risks or challenges to the financial system.

CBDC is a digital form of fiat currency issued by a central bank, which can be used as a legal tender for payments and settlements. CBDC is not considered as a virtual asset under the law, because it is a direct liability of the central bank, and does not involve any intermediaries or third parties that could pose any operational or security risks.

What Needs to Happen Next?

Q: There’s an opinion suggesting that while the Virtual Asset User Protection Act focuses mainly on asset segregation and unfair trading activities of virtual asset service providers, regulations on smart contract-based services such as DeFi, Decentralized Autonomous Organizations, and Web3 are inadequate.

How do you perceive this? What alternative methods do you see for the upcoming laws to provide more comprehensive regulations aimed at preventing user harm?

A: Personally, I think the current regulations are sufficient for the time being. We must understand that we are dealing with innovation, which changes very fast.

Putting up a base and having backup correction plans along the journey would be a more protective method for the South Korean market.

I think the best way to approach this issue is to adopt a balanced and flexible perspective that considers both the benefits and drawbacks of smart contract-based services and seeks to find a middle ground between regulation and innovation. Some possible alternative methods for the upcoming laws to provide more comprehensive regulations are:

  • Establishing clear and consistent standards and definitions for different types of smart contract-based services, such as decentralized finance (DeFi), DAOs, and Web3, and applying appropriate rules and requirements for each category.
  • Creating a sandbox or pilot program that allows for testing and experimenting with new and innovative smart contract services under certain conditions and exemptions and with regular monitoring and evaluation.
  • Encouraging collaboration and communication between regulators, developers, users, and other stakeholders to foster mutual understanding, trust, and feedback and to promote best practices and self-regulation.
  • Adopting a principles-based and risk-based approach that focuses on the outcomes and impacts of smart contract-based services rather than the specific processes and mechanisms and that applies proportional and tailored measures according to the level and nature of risk involved.

 

Source: https://www.techopedia.com/anndy-lian-south-koreas-new-crypto-rules-bring-market-stability

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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South Korea: Exploring the New Virtual Asset Accounting and Disclosure Guidelines

South Korea: Exploring the New Virtual Asset Accounting and Disclosure Guidelines

South Korea has recently taken a significant step towards enhancing the transparency and accountability of virtual asset issuers and operators.

The country’s financial authorities have approved the ‘Virtual Asset Accounting Supervision Guidelines‘, which provide clear and consistent rules for the accounting and disclosure of virtual assets.

These guidelines apply to all externally audited companies from January 1 and aim to address the confusion and uncertainty that have plagued the virtual asset industry.

What are the Virtual Asset Accounting Supervision Guidelines?

The Virtual Asset Accounting Supervision Guidelines are a set of authoritative interpretations that reasonably apply the current accounting standards (IFRS, etc.) to the specific characteristics of virtual assets.

They are not new accounting standards but rather a way to clarify and harmonize the existing ones. They are mandatory for both companies applying the Korean International Financial Reporting Standards (K-IFRS) and the General Accounting Standards (K-GAAP).

The guidelines cover various aspects of virtual asset accounting, such as:

  • The recognition of profits and assets from the issuance and transfer of virtual assets
  • The classification and measurement of virtual assets held by companies
  • The accounting and disclosure of virtual assets entrusted by customers to virtual asset operators (exchanges)
  • The annotation disclosure of the main contents of the white paper, such as the size of virtual asset issuance and performance obligations, the status of internal reservations and free distribution, details of customer consignment virtual asset contracts, storage risks, etc.

The guidelines also specify the conditions and criteria for determining the accounting treatment of virtual assets, such as:

  • The fulfillment of all performance obligations stated in the white paper by the issuing company
  • The control rights over the virtual assets entrusted by customers to the operators
  • The purpose of acquiring the virtual assets and whether they are financial products or not

The guidelines are expected to improve the accuracy and reliability of the accounting information on virtual assets, as they will be verified by external auditors. They will also enhance the comparability and consistency of the financial statements of virtual asset issuers and operators, as they will follow the same rules and standards.

Why are the Virtual Asset Accounting Supervision Guidelines Important?

The guidelines are important for several reasons. First, they reflect virtual assets’ growing recognition and legitimacy as a new form of economic activity and value creation.

South Korea is one of the most active and innovative markets for virtual assets, with a high level of adoption and development. The guidelines show that the country is committed to fostering a healthy and sustainable virtual asset ecosystem by ensuring that the issuers and operators are accountable and transparent to the investors and customers.

Second, they address the challenges and risks that arise from the lack of accounting standards and disclosure practices for virtual assets. The virtual asset industry is still in its infancy, and there are many uncertainties and ambiguities regarding the accounting and reporting of virtual assets. This can lead to confusion, inconsistency, and manipulation of the accounting information, undermining the trust and confidence of the information users.

The guidelines provide a clear and comprehensive framework for the accounting and disclosure of virtual assets, which can reduce the information asymmetry and enhance the protection of the information users.

Third, they set a precedent and a benchmark for other countries and jurisdictions that are considering or developing their own accounting and disclosure rules for virtual assets.

The guidelines are based on the current accounting standards (IFRS, etc.), which are widely adopted and accepted worldwide. They also consider the specific characteristics and challenges of virtual assets, such as their volatility, complexity, and diversity.

The guidelines can serve as a reference and a model for other regulators and standard-setters seeking to establish or improve their own accounting and disclosure regimes for virtual assets.

How do the Virtual Asset Accounting Supervision Guidelines Compare to Other Countries?

They are among the most comprehensive and advanced worldwide, covering a wide range of virtual asset activities and transactions. They also provide detailed and consistent guidance for the accounting and disclosure of virtual assets and reflect the latest developments and trends in the virtual asset industry, such as the emergence of new types of virtual assets and business models.

Other countries and jurisdictions have different approaches and levels of regulation for the accounting and disclosure of virtual assets. Some of them, such as the US, Japan, and Australia, have issued specific accounting standards or guidance for virtual assets. Others, such as the UK, Canada, and Singapore, have adopted a more general or flexible approach. Some of them, such as China, India, and Russia, have not yet issued any accounting or disclosure rules for virtual assets.

The differences in the accounting and disclosure regimes for virtual assets worldwide can create challenges and opportunities for the virtual asset issuers and operators, as well as the investors and customers.

On the one hand, they can create complexity and inconsistency in the accounting and reporting of virtual assets, which can increase the costs and risks for the information users. On the other hand, they can also create diversity and innovation in the accounting and reporting of virtual assets, enhancing the value and utility of the information users.

What are the Implications and Future Prospects of the Virtual Asset Accounting Supervision Guidelines?

The guidelines are a significant milestone for the virtual asset industry in South Korea and beyond. They represent a positive and proactive response to the growing demand and need for transparency and accountability in the virtual asset ecosystem. They also demonstrate the leadership and vision of the South Korean financial authorities in regulating and developing the virtual asset industry.

They are expected to have various implications and impacts on the virtual asset issuers, operators, investors, and customers.

For the issuers and operators, the guidelines will require them to improve their accounting and disclosure practices and comply with the rules and standards set by the guidelines. This may entail additional costs and efforts, but it may also bring benefits such as enhanced reputation, trust, and competitiveness.

For the investors and customers, the guidelines will provide them with more accurate and reliable information on the virtual assets they are interested in or involved with. This may increase their confidence and satisfaction, but it may also raise their expectations and demands.

They are also likely to influence and shape the future of the virtual asset industry, both in South Korea and globally. The guidelines may encourage more innovation and development in the virtual asset industry, as they provide a clear and supportive regulatory environment for virtual asset issuers and operators.

The guidelines may also foster more collaboration and cooperation in the virtual asset industry, as they create a common and consistent accounting and disclosure framework for the virtual asset issuers and operators. The guidelines may also inspire and motivate other countries and jurisdictions to follow suit and adopt or improve their own accounting and disclosure rules for virtual assets.

How does the National Tax Service’s Decision Affect the Virtual Asset Holders?

Another important development in the regulation of virtual assets in South Korea is the National Tax Service’s decision to exclude the cases where virtual assets are held through non-custodial, decentralized virtual asset wallets such as cold wallets (offline wallets) from overseas financial account reporting.

This decision was announced on October 30, 2023, as an official interpretation of the law after some confusion and controversy over whether virtual asset wallets created by overseas corporations such as Ledger and Metamask had to be reported.

The National Tax Service explained that overseas business operators only provide programs to store and store personal encryption keys, etc., and do not have control over them, so they are not involved in selling, buying, exchanging, or holding virtual assets in wallets such as cold wallets.

Therefore, holding virtual assets through such wallets does not constitute a foreign financial account and is not subject to reporting pursuant to Article 53 of the ‘Act on International Tax Adjustment’.

This decision applies to cases where virtual assets are held in a personal wallet created through devices provided and sold by an overseas virtual asset wallet business, and the value of the virtual assets exceeds 500 million won.

Starting in 2023, the National Tax Service will include virtual assets as a target for reporting overseas financial accounts, and those holding more than 500 million won will be required to report them to the National Tax Service. However, this requirement will not apply to the virtual assets held in non-custodial, decentralized virtual asset wallets.

This decision has significant implications for the virtual asset holders, as it reduces the regulatory burdens and costs for them. It also recognizes the difference between centralized and decentralized virtual asset wallets and the degree of control and involvement of overseas business operators.

This decision could potentially encourage the use of non-custodial, decentralized virtual asset wallets, as they offer more security, privacy, and autonomy for the users. However, this decision also raises some challenges for the regulators, as it limits their access and oversight of the virtual assets held in such wallets. This decision might also create some inconsistency and complexity in the reporting and taxation of virtual assets, depending on the type and location of the wallets.

How does the Financial Services Commission’s Proposal Affect the Virtual Asset Market?

Another important development in regulating virtual assets in South Korea is the Financial Services Commission’s proposal to amend its credit finance act, which aims to effectively prohibit local citizens from purchasing cryptocurrencies using credit cards.

The regulator said this proposal was announced as a measure to limit the crypto traders from buying crypto on foreign crypto exchanges.

The FSC explained that the main reason for this new amendment is to prevent the illegal outflow of domestic funds, money laundering, and the encouragement of speculative behavior, which pose risks to the financial stability and security of the country. The FSC also noted that using credit cards to purchase cryptocurrencies is not common in South Korea, as most transactions are done through bank accounts or prepaid cards.

The proposal plans to collect public feedback on the amendment until February 13. According to Yonhap News Agency, it is expected to be reviewed and voted on with the aim of implementation in the first half of 2024.

This proposal by the FSC has significant implications for the virtual asset market, especially for cross-border transactions and exchanges. By prohibiting the use of credit cards to purchase cryptocurrencies, the FSC intends to reduce the demand and supply of foreign cryptocurrencies in the domestic market and discourage traders from using foreign platforms that may have lower regulatory standards or higher risks.

However, this proposal may also have unintended consequences, such as driving the traders to use alternative methods or channels to access foreign cryptocurrencies, such as peer-to-peer platforms, decentralized exchanges, or offshore accounts.

The FSC’s proposal also reflects the increasing scrutiny and regulation of the virtual asset market by the South Korean authorities, who are trying to balance the promotion and protection of the virtual asset industry.

The proposal follows the recent enactment of the ‘Act on Reporting and Using Specified Financial Transaction Information’, which requires the virtual asset operators to register and comply with the anti-money laundering and customer protection rules. The proposal also precedes the planned introduction of the capital gains tax on virtual asset income, which is scheduled to take effect from January 1, 2025.

Their proposal is another example of how South Korea is leading and pioneering in regulating and developing the virtual asset industry. It shows that the country is concerned not only with the accounting and disclosure of virtual assets but also with the taxation and reporting of virtual assets. It also shows that the country is willing and able to adapt and respond to the changing and evolving nature of virtual assets and to balance the needs and interests of the various stakeholders in the virtual asset ecosystem.

The Bottom Line

The Virtual Asset Accounting Supervision Guidelines are not the end but the beginning of a new era for the virtual asset industry. They are a dynamic and evolving document that will be updated and revised as the virtual asset industry grows.

The South Korean regime is comprehensive. I have also briefly covered tax reporting, which works hand in hand with the accounting supervision guidelines. To close up the loop, there is also a proposed amendment to their Credit Finance Act. It proposes to ban local citizens from using credit cards to purchase cryptocurrencies, with concerns over illegal outflows of funds and money laundering and encouraging speculation leading to the decision, with the goal of implementation in the first half of 2024. Both inflows and outflows are taken into consideration. I would expect to see tougher rules for projects and also exchanges in months to come.

They are also a challenge and an opportunity which will test and reveal the potential and performance of the virtual asset industry. They are, above all, a sign and a symbol which show that the virtual asset industry is maturing and advancing and that South Korea is leading and pioneering in this field.

 

Source: https://www.techopedia.com/south-korea-exploring-the-new-virtual-asset-accounting-and-disclosure-guidelines

FAQ

What do the Virtual Asset Accounting Supervision Guidelines entail?

The Virtual Asset Accounting Supervision Guidelines are a set of rules applied to the accounting and disclosure practices concerning virtual assets in South Korea. These guidelines encompass various aspects such as profit recognition, asset classification, and the handling of virtual assets entrusted to operators.

Why are the Virtual Asset Accounting Supervision Guidelines crucial?

The guidelines play a vital role in establishing transparency and accountability within the virtual asset industry. They address uncertainties and risks associated with the lack of clear accounting standards, fostering trust and confidence among investors and customers.

How do the Virtual Asset Accounting Supervision Guidelines compare internationally?

Compared to other countries, South Korea’s guidelines are comprehensive and advanced. While some nations have specific accounting standards for virtual assets, others have a more flexible approach. These disparities create both challenges and opportunities for the industry and its stakeholders globally.

What implications do the Virtual Asset Accounting Supervision Guidelines have for stakeholders?

The guidelines are expected to impact issuers, operators, investors, and customers significantly. They require improved accounting practices, potentially leading to enhanced reputation and trust for issuers and operators. Investors and customers will benefit from more reliable information about the virtual assets they engage with.

How does the recent National Tax Service decision affect virtual asset holders in South Korea?

The National Tax Service's decision specifically excludes certain decentralized virtual asset wallets from overseas financial account reporting requirements. This decision reduces regulatory burdens for holders using such wallets, offering increased security and autonomy. However, it poses challenges for regulators in overseeing assets held in decentralized wallets.

These questions aim to address the key aspects and implications of South Korea’s Virtual Asset Accounting Supervision Guidelines, providing valuable insights for individuals seeking information about this evolving industry.

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j