South Korea financial regulator wants digital asset firms to disclose holdings

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South Korea’s Financial Services Commission (FSC) has submitted a bill to the National Assembly pushing for firms holding digital assets to publicly disclose the extent of their holdings.

According to the draft bill, entities will be required to make disclosures if they issue or hold digital assets like non-fungible tokens (NFTs), security tokens, or digital currencies like Bitcoin. The incoming rules also extend to digitized securities under the ambit of South Korea’s Capital Markets Act.

The FSC notes that the new disclosure requirement is geared toward creating “more consistent and clear information about companies that issue or hold virtual assets.” On a wider scale, the proposal seeks to establish clear-cut accounting guidelines for industry firms, receiving key contributions from the Securities and Futures Commission and the Korea Accounting Institute.

The bill provides for the use of external auditors, confirming that it will release procedure guidelines to guide the auditing of companies dabbling in digital assets. In crafting the provision, South Korean legislators considered the developments in other jurisdictions like the EU, the U.S., and Japan on the asset disclosures of digital currency operators.

The financial regulator is keen on the immediate application of the new disclosure requirement and accounting standard as it eyes an enforcement date at the start of 2024.

“Early application is possible and is strongly recommended,” the FSC said.

In early July, the FSC announced an amendment to its code of conduct requiring its employees involved in digital currency-related duties to disclose their holdings. The amendment also includes employees involved in the space over the last six months, following a request from the Anti-Corruption and Civil Rights Commission.

South Korea’s local digital currency industry has been hit with a barrage of scandals, with the most recent being allegations against lawmaker Kim Nam Kuk bordering on conflicts of interest. Critics allege that Kim failed to make proper disclosures following the sale of his digital currency holdings and used his position as a member to delay a proposed 20% taxation.

“This is a serious moral hazard,” Daegu Mayor Hong Joon-pyo said. “He should have left his job as a lawmaker and focused on speculative trading instead.”

In response, the National Assembly passed a new law mandating all public officials to disclose the extent of their digital currency holdings, referred to as the “Kim Nam-guk Prevention Law.”

Sanitizing the sector

In an effort to restore investors’ confidence, South Korean authorities have increased their monitoring of the local digital currency sector. In the weeks following the ill-fated collapse of Terra, the country launched a Digital Assets Committee to oversee all matters of policy formation and supervision for the industry.

On the enforcement side, prosecutors have instituted legal action against Terraform Labs co-founder Daniel Shin for his role in the project’s collapse. Prosecutors are currently jostling for the extradition of Do Kwon, saying that they have amassed a trove of evidence sufficient to put the embattled founder behind bars for 40 years.

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