In a significant regulatory move, South Korea’s Financial Services Commission (FSC) has mandated that by July 2024, investors depositing digital assets into exchanges must earn interest, though this rule does not extend to nonfungible tokens (NFTs) and central bank digital currencies (CBDCs).
Reports from local media on Dec. 10 indicated the FSC’s intention to issue legislative guidance on this matter. While NFTs are generally excluded, the regulator pointed out potential exceptions: if tokens, though categorized as NFTs, are used for payments and issued in substantial quantities, they might fall under the virtual asset category and thus qualify for interest on deposits.
The FSC’s notice also outlines how virtual asset operators should manage user deposits. It stipulates that exchanges separate customer funds from their own and securely store them with a bank. Furthermore, it requires that at least 80% of cryptocurrencies be stored in cold wallets.
The forthcoming guidelines will also cover protocols for responding to hacks and other cybersecurity incidents. Virtual asset service providers will need to secure insurance or build up financial reserves. The regulation also restricts the suspension of deposits or withdrawals, permitting it only under essential circumstances such as court or regulatory body orders.
This move is part of South Korea’s ongoing efforts to tighten crypto regulations. Earlier in December, financial authorities urged the public to report any unlicensed crypto exchanges operating in the country. This initiative is being spearheaded by the Digital Asset Exchange Association and South Korea’s Financial Intelligence Unit.