South Korea joins other progressive countries such as France, by establishing a policy framework to legalise cryptocurrency trading.
Crypto Lists has learnt that the country’s Financial Service Commission (FCS) tabled its report to the National Assembly, highlighting possible legislative ways to domesticate and license the booming crypto industry. The main aim is to protect South Koreans from crypto-trade manipulation and pump-and-dump schemes.
Current crypto traders in South Korea use the Capital Market Act to guide their practice. The proposed policy seeks to introduce licenses to crypto traders and issuers who operate the Initial Coin Offerings and facilitate cryptocurrency exchanges. Failure to comply with these licensing guidelines attracts stiffer and more costly penalties. They include hefty fines and imprisonment. Crypto Lists expects that the new rules are drawn up after the failure of the Terra ecosystem and in particular LUNA and UST, forcing South Korea to protect their citizens better.
The Journey Towards Licensed Crypto Trading in South Korea
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There was an increase in falsifying trading transactions from crypto trading companies. The Capital Market Act couldn’t solve the standoff as it had no law to license crypto trading companies. They lacked the investment information necessary to understand trading dynamics, which gave the traders the leeway to control the pricing. This was the source of undue advantage favouring the traders. However, this seems to be ending soon following the Luna Shock. New crypto regulation in South Korea outlines higher penalties than the Capital Market Act.
One year of licensing research
The National Assembly requested the FSC to research on cryptocurrency licensing last year. All this is captured in the Comparative Analysis of the Property Industry Act, which brings together 13 bills that seek to cement crypto-trade licensing in law. The central bill for the purpose is the Virtual Property Industry Act.
There are several reports showing that Stablecoins have been part of the FSC agenda for some time. The National Assembly coming in and the problem with LUNA were mere catalysts. To mitigate this in the long run, plans are underway to manage Stablecoins, including limiting the amount an issuer can mint in a day. It also suggests the availability of collateral to manage crypto-trading risks, especially for investors.
When Yoon Seok-Yeol was elected South Korea’s President, cryptocurrency trading was part of his agenda. On May 2nd, he sponsored a bill to the National Assembly seeking to not tax any crypto investments in South Korea. The Comparative Analysis of the Property Industry Act is part of the regulatory frameworks he intended to use to embed cryptocurrency trading into law.
Areas of Focus
The main aim of this cryptocurrency licensing legislation is to protect South Koreans from manipulation by crypto traders. Any deliberate wrongdoing such as trading data manipulation will not go unpunished. Some of the manipulation tactics include inflating crypto coin prices, falsifying orders and insider dumping. However, some cryptos have irregular market price fluctuation, and the government wants to ensure that such actions are not premeditated.
Submission of a trading White Paper is part of the licensing process, which will act as proof of concept and security declaration. It contains the coin version and possible amendment formula if the need arises. The aim is to protect investors from losing their investment, similar to what occurred to Luna.
The proposal also enhances the crypto trading system through vetting and accreditation. The crypto market primarily uses funds deposited in the South Korea Banking system. Money is a measure of value, which needs regulatory protection to avoid inflation. The proposal plans to raise entry barriers into the market to mitigate the risk associated with crypto trading.
These proposals lead to proper trade organisation, risk reduction and investor-centric crypto trading. With the valuation of the crypto issuer ascertained, the government can monitor the trade and cushion its citizens against exorbitant rates. Fines for acting contrary to these proposed legislations include license suspension, cash fines, imprisonment and confiscation. In case of any damages, the law acknowledges it and compels the crypto issuer to bear the cost.
Recent Developments That Preambles Cryptocurrency Trade Licensing
The Crypto trading license discussion comes at a time when most cryptocurrencies are gradually losing their value. Luna, one of Terra Networks’ cryptocurrencies, was devalued heavily and suffered the same fate, trading for about $0.1 at the moment. With a working formula that values UST at $1 when at its lowest, this is a big blow to its development. However, the most devalued cryptos had something which could avert their degrading. Lack of backing assets is one of them, which rebases the coins in case of a value meltdown.
However, more countries are racing against time to entrench cryptocurrency as a currency. The most recent one is El Salvador, which hosted over 40 countries in a bid to domesticate Bitcoin as a medium of exchange. The discussion brought together central banks and financial regulators to discuss modalities and how they can tap the unbanked by adopting Bitcoin as a measure of value.
Crypto Lists will be here to document cryptocurrencies growth, especially Bitcoin, and how it will influence the South Korean Financial Sector. Licensing Crypto-traders is the first step in making the digital currency acceptable. With more countries joining the haste to manage cryptocurrency trading, its influence on the world market and economics is inevitable.