The South Korean Financial Services Commission (FSC) has released a report outlining their new definition of cryptocurrencies along with proposed practices for token issuers and other companies.
Incentive-driven rules can impose confusing rules on individuals or platforms using non-artistic NFTs for trading purposes, as well as on decentralized finance projects, among other things.
The November 23rd report by the FSC listing the items proposed in the Cryptocurrency User Protection Act has been sent to Congress for review.
It lays down rules for token issuers who would like their tokens to be traded on Korean exchanges and suggests penalties for those created in the opinion of the FSC “excessive profits from market manipulation or trading on undisclosed information.”
The report is initially aimed at token issuers, including ICO operators, decentralized autonomous organizations (DAOs), and non-fungible token mints (NFTs) (and possibly other services).
The FSC will require these companies to submit a whitepaper, obtain a positive review from an accredited token review service, obtain a legal review of the project, and provide regular business reports to users.
Previously, the FSC had not recognized NFTs as managed assets, but that decision changed earlier this week. It also treats privacy tokens like Monero (XMR) and stablecoins like Tether (USDT) as cryptocurrencies, while central bank digital currencies (CBDCs) are not.
Related: Mixed news on crypto tax regulations is causing confusion in South Korea
Failure to comply with the rules will result in a minimum of five years in prison plus three to five times the amount of “illegal profit”. Unfair profits are any profits that are made when companies fail to comply with the law. These sanctions correspond to those of the existing Capital Market Act.
The new proposals are a response to what the FSC has assessed as a deficiency in the Special Reporting Act’s ability to fully protect investors. The law resulted in the closure of most of the country’s cryptocurrency exchanges due to strict restrictions in order to stay afloat.
A well-connected stock market insider told Cointelegraph that the proposals were positive:
“Once passed, the new law will continue to fuel the development of the industry and help protect digital asset investors.”