South Korea’s new crypto bill is likely to impose stricter controls on exchanges

• The DABA has been in the works for a while, but a leaked report sheds light on what regulations are coming.
• South Korea’s new President has also promised to regulate the crypto industry fast.
• The DABA is expected to come into effect by 2024.

The government of South Korea may be looking to implement a new licensing framework that forces crypto exchanges to protect investors. A new report from the Financial Services Commission (FSC), which regulates financial markets in the country, suggests that the government will introduce a law called the Digital Assets Basic Act (DABA) next year, which will be enforced by 2024. The law will seek to incorporate virtual assets into the institutional system in the country.

The report was leaked and reported by Korean media earlier this week and seeks to provide rules that help fight issues like pump-and-dump schemes, wash trading, and even insider trading.

Pump-and-dump and wash trading schemes inflate the price of a crypto or non-fungible token (NFT) through illicit means. In wash trading, the seller is on both sides of transactions and inflates the price by buying and selling to themselves. On the other hand, pump-and-dump schemes spread false information to inflate the price.

To be sure, the DABA has been in the works for a while now and was formed by the FSC earlier this year.

What does it entail?

According to the FSC’s report, the new regulations will be stricter on exchanges and will punish them for failing to comply with the country’s Capital Markets Act, which regulates securities. The DABA will also issue varied licences to crypto service providers, based on the kind of service they provide.

In this, crypto trading service providers will be required to provide the highest level of protection to users. South Korea has been big on the protection aspect of the industry for a while now. The country also launched an “emergency investigation” into its domestic exchanges after the crash of the cryptocurrency Luna this month.

Further, the DABA will also require firms and users issuing cryptocurrencies to submit white papers to the FSC before a project goes live. It’s not clear whether the same will apply to NFTs as well, but the information provided to the FSC will have to include information about the company’s executives, how funds are obtained, and the risks that are involved in the project. This rule will also apply to companies outside of South Korea, that put tokens on the country’s exchanges.

Regulating crypto

South Korea is amongst a handful of countries that have been moving fast on crypto regulations around the world. The country’s new President, Yoon Seok-yeol, who was elected earlier this month, has been a vocal advocate for regulating the industry.

While it is unclear whether the DABA is the law in question, shortly before he took office on May 3, Yoon said he would push his administration to pass a law to regulate cryptocurrencies and put a legal framework in place. Yoon had also said he would defer taxation regimes on cryptocurrencies till the DABA is clarified.

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