South Korea’s Financial Services Commission (FSC) has released a report outlining a new definition of cryptocurrency, as well as proposed actions for token issuers and penalties for non-compliance.
The rules discussed could impose onerous rules for individuals or platforms that produce non-artificial NFTs designed for trading, as well as for decentralized financial projects, among other things.
The November 23 FSC report describes the elements it has proposed in the Crypto User Protection Act, which is being sent to the National Assembly.
The law sets rules for token issuers wishing to trade their tokens on Korean exchanges, and proposes penalties for those who, according to the FSC, make “excessive profits through market manipulation or trading in undisclosed information.”
The report primarily looks at companies that issue tokens, including ICO operators, Decentralized Autonomous Organizations (DAOs), NFT (and possibly others) token mining services.
The FSC will require these organizations to submit a technical document, receive a positive review from a reputable token appraisal service, receive due diligence on the project, and disclose regular business reports to users.
The FSC did not previously recognize the NFT as a regulated asset, but that decision was changed earlier this week. It also considers privacy tokens like Monero (XMR) and cryptocurrencies like Tether (USDT) as cryptocurrencies, while Central Bank Digital Currencies (CBDC) do not.
Related: Mixed Messages About Cryptocurrency Tax Rules Causing Confusion in South Korea
Failure to comply with the rules will result in a prison sentence of at least 5 years plus three to five times the amount of “unfair profit” obtained. Unfair profits will be treated as all profits made at a time when the companies did not comply with the law. These penalties reflect those stipulated in the current Capital Markets Act.
The new proposals are in response to what the FSC sees as a lack of the ability of the Special Reporting Act to fully protect investors. The law is the law that has led to the closure of most cryptocurrency exchanges in the country due to strict requirements to continue operating.
An exchange industry insider told Cointelegraph that the suggestions were positive:
“Once the new law takes effect, it will advance the industry and help protect digital asset investors.”