South Korea’s Tighter Regulations for Crypto Exchange Listings

South Korean financial authorities are set to release new guidelines aimed at imposing stricter regulations for token listings on centralized cryptocurrency exchanges. These guidelines are expected to be released by the end of April or early May. According to local media, the authorities will prohibit the listing of virtual assets on domestic exchanges if they have been associated with hacking incidents, unless the root cause has been thoroughly determined. In the case of foreign virtual assets, they can only be listed on domestic exchanges if a white paper or technical manual has been published specifically for the Korean market. Tokens that have already been listed on a licensed exchange for over two years may be exempt from these new criteria.

The upcoming directives may also require exchanges to delist cryptocurrencies if issuers fail to disclose essential information, such as discrepancies between the actual circulation and the disclosed amount. The authorities are currently gathering feedback from local exchanges as they prepare the guidelines. The Financial Supervisory Service has been working on these guidelines since the latter part of last year, seeking input from exchanges like the Digital Asset Exchange Association (DAXA). The Financial Services Commission (FSC), which is responsible for overseeing and regulating financial institutions and markets in South Korea, will be overseeing the implementation of these regulations.

In early February, the South Korean government issued an update to the Virtual Asset Users Protection Act, which includes stricter penalties for violations. These penalties can include fixed-term imprisonment of over one year or fines of three to five times the amount of illegal profits. This legislation was prompted by a major industry crisis involving Terraform Labs and its founder, Do Kwon, who is a South Korean citizen. The collapse of Terra in May 2022 resulted in a loss of over $450 billion.

The Gyeonggi Provincial Tax Justice Department, located in the most densely populated province in South Korea, collected 6.2 billion won ($4.6 million) of non-declared taxes in 2023 through a digital tracking system that targeted cryptocurrency accounts used by tax evaders. The Financial Intelligence Unit (FIU) of South Korea reported a 49% increase in suspicious transactions flagged by domestic digital asset exchanges in 2023 compared to the previous year. On February 14th, the FIU outlined its work plan for 2024, which includes strategic initiatives to regulate the crypto market and handle critical data.