South Korean financial authorities are set to introduce stricter regulations for token listings on centralized crypto exchanges by the end of April or early May, according to reports from local media outlet News 1. The new guidelines will prohibit the listing of digital assets that have been involved in hacking incidents on domestic exchanges, unless the root cause of the incident has been thoroughly determined. In addition, foreign digital assets will only be allowed to be listed on domestic exchanges if a white paper or technical manual is published specifically for the South Korean market. However, tokens that have already been listed on a licensed exchange for more than two years may be exempt from these new criteria.
The guidelines may also require exchanges to delist cryptocurrencies if the issuers fail to disclose essential information, such as discrepancies between the actual circulation and the disclosed amount. The South Korean government is currently seeking input from local exchanges in order to finalize the directives. Since late 2023, the Financial Supervisory Service has been working on listing guidelines by gathering feedback from stakeholders, including the Digital Asset Exchange Association.
The Financial Services Commission, a government agency responsible for overseeing and regulating financial institutions and financial markets in South Korea, issued an updated version of the Virtual Asset Users Protection Act in early February. The new legislation introduces significant criminal penalties and fines for violations, including imprisonment of over one year or a fine of three to five times the amount of illegal profits.
This legislative update was prompted by a major industry crisis involving Terraform Labs and its founder, Do Kwon, a South Korean citizen. Terra’s collapse in May 2022 resulted in losses of over $450 billion. In an effort to crack down on tax evasion related to cryptocurrencies, the Gyeonggi Provincial Tax Justice Department implemented a digital tracking system for crypto accounts, leading to the collection of 6.2 billion won ($4.6 million) in non-declared taxes in 2023.
The Financial Intelligence Unit of South Korea reported a 49% increase in flagged suspicious transactions by domestic digital asset exchanges in 2023 compared to the previous year. On February 14, the FIU outlined its work plan for 2024, highlighting key data and strategic initiatives for regulating the crypto market.
In related news, Crypto.com is expanding its operations in South Korea despite the growing regulatory scrutiny.