South Korea proposes new regulations for crypto assets

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South Korea’s top financial regulator has proposed new crypto asset regulations concerning non-fungible tokens (NFTs), interest on deposits, and mandatory cold wallet holdings.

The Financial Services Commission (FSC) aims to exclude NFTs from existing regulations that define “virtual assets” like cryptocurrencies. Due to their unique nature and collectibility, NFTs would not fall under legal definitions referring to assets with interchangeable values that can be electronically traded or transferred.

The new proposals would require Korean banks to pay interest on customer deposits of crypto held by local virtual asset service providers (VASPs). VASPs must keep customer deposits in separate bank accounts from their corporate assets.

Addressing the security of customer assets is a crucial focus of the proposed regulations. VASPs must store at least 80% of customer assets in cold wallets, which are offline and disconnected from the internet. This measure provides enhanced security against hacking and other security breaches. 

The Financial Services Commission (FSC) of South Korea is currently inviting public feedback on proposals for an updated regulatory framework. The aim is to finalize this framework in the first half of 2024. These proposals reflect South Korea’s approach to regulating the crypto industry, focusing on adapting to emerging categories like NFTs while prioritizing investor protections.

With Korea being one of the world’s leading crypto economies, regulatory developments are often considered bellwethers for potential policy directions in other jurisdictions.

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