The Financial Services Commission (FSC) of South Korea has declared that starting July 2024, investors in digital assets will be entitled to earn interest on their deposits held at exchanges. However, this regulation will not apply to NFTs and CBDCs.
Regulations on virtual asset handling
Exchanges will be required to segregate customer deposits from their own assets and entrust them to a bank. Additionally, they must store 80% of their coin holdings in a cold wallet. The policy will be detailed in the “Enforcement Decree and Supervisions Regulations of the Virtual Asset User Protection Act.”
The FSC clarified that NFTs and CBDCs are excluded from the interest benefit under the new policy. However, exceptions apply if tokens classified as NFTs function as payment methods and are issued in large numbers, potentially categorizing them under virtual assets eligible for interest when deposited into exchanges.
Exchanges will be required to separate user deposits from their assets and entrust them to a bank. Furthermore, at least 80% of the economic value of coins must be stored in a cold wallet to mitigate risks such as hacking. Additionally, the FSC introduced measures for handling hacking incidents and cyber vulnerabilities, mandating virtual asset operators to acquire insurance or accumulate reserves.
Prohibition on blocking deposits and withdrawals
The new regulations also prohibit blocking deposits or withdrawals, except when necessary, such as in the event of a hack or other cyber vulnerabilities. This measure is only permitted when requested by courts, investigative agencies, and financial authorities, ensuring that user funds remain accessible and secure.
Broader regulatory framework
The FSC is working to ensure clarity in virtual asset regulations. As part of this effort, financial regulators in South Korea have issued draft rules requiring companies holding or issuing cryptocurrencies to disclose their holdings in financial statements from 2024. This includes providing information on profits, book value, and the estimated market value of their cryptocurrencies.
This policy marks a significant step in South Korea’s approach to regulating the rapidly evolving digital asset landscape, balancing innovation with investor protection and market integrity.
