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The report, commissioned by the federal government of South Korea, recommends that the domestic crypto industry adopt a licensing system for exchanges and token issuers as a way to protect investors.
A report published by the Financial Services Commission (FSC) before the National Assembly, the country’s legislature, also calls for the adoption of new rules to mitigate the effects of insider trading, pump and dump schemes, and sham trading.
The new rules will be stricter, and penalties for non-compliance will be more severe than in the Capital Markets Act, which the domestic crypto industry currently adheres to.
The report, “Comparative Analysis of the Virtual Property Industry Law,” obtained exclusively by the Korea Economic Daily on May 17, recommends the creation of a licensing system that will apply to coin issuers, such as companies that conduct initial coin offerings (ICOs) and cryptocurrency exchanges. Depending on the risk involved, licenses of varying degrees will be issued.
Regulating coin issuers through a robust licensing system is now considered the “most necessary protection” in the market. This position can be underscored by the collapse of the cryptocurrency market caused by the fall of the LUNA coin, from the Terra blockchain, whose South Korean founder Do Kwon may find himself in front of the National Assembly to explain what happened.
One of the recommended rules will force coin issuers to submit to the FSC a technical document about their project, which includes detailed information about the company’s officials, how it plans to use the funds raised through the ICO and what risks are associated with the project. Updates to the white paper must be submitted at least seven days before the proposed changes take effect.
Even companies headquartered overseas that want their tokens to be traded on Korean exchanges will have to adhere to the rules of the white paper.
It’s likely that stablecoins were on the FSC’s agenda long before the problems with Terra USD (UST), Dei (DEI) and Tether (USDT) arose last week. However, there are guidelines for establishing asset management requirements for a stablecoin issuer that will apply to how they use collateral and how many coins the issuer can mint.
The report also aims to curb shadow trading activities that local exchanges and coin issuers have been accused of for years. It proposed rules regarding insider trading, price manipulation, pumping and dumping schemes, dummy trading, and industry-standard transaction fees.
South Korea’s new president, Yoon Seok-yeol (pictured), was elected in part because of his eagerness to understand the crypto industry. On May 3, he stated that his regime would push ahead with a bill that would extend the tax-free status of income from cryptocurrency investments until a proper legal framework is in place.
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