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A report commissioned by South Korea's federal government recommends that the domestic cryptocurrency industry adopt a licensing system for token exchanges and issuers as a way to protect investors.
The report, sent by the Financial Services Commission (FSC) to Parliament, the country's legislature, also calls for new regulations to reduce insider trading, pump-dumping and trade plans.
The new regulations will be stricter and the penalties for non-compliance will be harsher than those in the Capital Markets Act that the domestic cryptocurrency industry currently adheres to.
The Virtual Assets Industry Act's Comparative Analysis report reveals a recommendation to establish a licensing system that applies to cryptocurrency issuers, such as companies that operate ICOs and cryptocurrency exchanges. The degree of change of the license will be issued based on the risks involved.
The management of coin issuers through a robust licensing system is considered the "most necessary safeguard" in the market today. This could be highlighted by the market crash caused by project Terra (LUNA), the project of South Korean founder Do Kwon that will likely be called to parliament to explain what happened.
A recommended regulation would force coin issuers to submit a white paper to the FSC about their project including details of the company's officials, plans to use the funds raised through the ICO, and what risks associated with the project. Updates to the white paper will have to be submitted at least seven days before the proposed changes can take effect.
Even companies with overseas headquarters that want their tokens traded on South Korean exchanges will be required to comply with the white paper rule.
It is likely that the FSC put stablecoins on their agenda before problems arose last week for Terra USD (UST), Dei (DEI) and Tether (USDT). However, there are recommendations that make requirements for the asset management of stablecoin issuers that will apply to how they use collateral and the amount of money that the issuer can mint.
The report also aims to curb the shady trading activity that local exchanges and coin issuers have been accused of for years. It proposes regulations on insider trading, price manipulation, pump-dumping plans, wash trade and industry standard trading fees.
A report in April said there were industry sources acknowledging the provisions in the Capital Markets Act "may not be enough to properly manage the cryptocurrency industry."
South Korea's new president Yoon Seok-yeol was elected in part due to his understanding of the cryptocurrency industry. On May 3, he announced that his regime would pass a bill extending the status of exemption from income tax from cryptocurrency investments until South Korea has the right regulatory framework.
The report revealed today could be the beginning of the framework that Chairman Yoon has been thinking of for the cryptocurrency industry.
