Philippines Delays Crypto Framework Publication

NFTs not subject to South Korea’s Virtual Asset User Protection ActIn anticipation of the Virtual Asset User Protection Act coming into effect in July of next year, the South Korean Financial Services Commission (FSC) has issued an advance notice regarding its subordinate statutes.Photo by Ethan Brooke on UnsplashSeven specific provisionsThe subsidiary regulations under the Act detail seven specific provisions aligned with the Act’s objectives. Firstly, assets categorized as electronic securities, mobile vouchers, deposit tokens backed by the Bank of Korea’s central bank digital currencies (CBDCs) and non-fungible tokens (NFTs) will not be classified as virtual assets and hence, not regulated by this Act. However, in instances where NFTs are used as a means of payment for specific goods or services, they will be regarded as virtual assets.Secondly, banks will take responsibility for managing the deposits of users on cryptocurrency exchanges. This aligns with the Act’s requirement for virtual asset service providers (VASPs) to keep users’ funds separate from their own, either by depositing them in, or entrusting them to, reputable institutions. Under these regulations, banks are required to manage users’ assets in a manner consistent with how investors’ deposits are handled under the Capital Markets Act. This means that banks are allowed to invest VASP users’ assets only in secure instruments, such as state and local government bonds, and are also obligated to pay fees to deposit owners, taking into account the yields of these investments.80% of user assets in cold walletsThe third key aspect of the regulations is that VASPs are required to store a minimum of 80% of user assets in cold wallets, which are not connected to the internet. This is higher than the current requirement of 70%, enhancing the security measures for users of virtual assets. To calculate the total value of a virtual asset at any given time, its total supply is multiplied by its average daily price over the past year. VASPs are obligated to assess the value of virtual assets every month.The fourth regulation mandates that VASPs must enroll in an insurance plan, contribute to a rainy day fund or accumulate reserves. This is to ensure they can fulfill their compensation responsibilities in the event of incidents like security breaches or technical failures. The required preparation amount is set at a minimum of 5% of the user assets stored in hot wallets, as these are more susceptible to risks. VASPs are required to update their compensation thresholds or reserves monthly and must take any necessary actions to comply with these requirements by the next working day following the update.Information disclosure guidelinesAnother regulation addresses the issue of insider trading in the context of the virtual asset market. Under the current Capital Markets Act, information is considered disclosed when it’s made available through disclosure systems of the FSC or the Korea Exchange (KRX). However, since the cryptocurrency market lacks a similar system, the new statute provides criteria for determining when information is deemed disclosed.For instance, if a VASP, including exchanges, releases crucial information about a virtual asset on an exchange and six hours pass, that information is regarded as disclosed. This acknowledges the non-stop nature of the crypto market. Moreover, information disclosed post 6 p.m. is treated as officially disclosed after 9 a.m. the next day.Additionally, if a virtual asset issuer publishes significant information about its token on a website hosting its white paper, the information is deemed public after one day. This is conditional upon the website being publicly accessible and having consistently provided important token information for the preceding six months.These rules aim to provide clarity and fairness in information disclosure in the crypto market, adapting the principles of traditional financial markets to the unique dynamics of virtual assets.No arbitrary suspension of transactionsThe sixth regulation restricts VASPs from arbitrarily halting deposits and withdrawals of virtual assets unless there are justifiable reasons for such actions. Acceptable circumstances for suspending these transactions include situations where the VASP experiences a technical disruption in its system, where regulatory authorities instruct a VASP to cease deposits and withdrawals or where cyberattacks or similar incidents have occurred or are clearly imminent.Lastly, virtual asset exchanges are required to monitor for abnormal transactions continuously. These are transactions that show substantial shifts in the prices or trading volumes of virtual assets, particularly in response to news or rumors that could influence cryptocurrency prices. If VASPs suspect unfair trading practices, they must report to the FSC or the Financial Supervisory Service (FSS). When there is ample evidence of such activities, crypto exchanges are obligated to notify the police or the prosecutors’ office. In addition, the financial regulator has the authority to levy fines based on the prosecution’s decisions or after completing consultations with the prosecution if a year has passed since the day of the report.During the period of advance notice, which spans from Nov. 11 to Jan. 22, the FSC will seek comments from relevant organizations, experts and businesses. This process is aimed at refining the rules and regulations subordinate to the Virtual Asset User Protection Act. Moving forward, the financial authorities plan to publish a set of guidelines and Q&A materials and conduct explanatory sessions, with the goal of ensuring a smooth implementation of the Act.

Tether, the issuer of the USDT stablecoin, has teamed up with local partners in the United Arab Emirates (UAE) in order to launch a dirham (AED)-backed stablecoin. In a statement published to the firm’s website on Aug. 21, Tether outlined that the stablecoin is being launched in partnership with Dubai-based technology conglomerate Phoenix Group and Green Acorn Investments, a company that describes itself as “a socially responsible investment firm dedicated to supporting critical sectors and supporting the generation of sustainable wealth and financial literacy.”Photo by DrawKit Illustrations on UnsplashFully backed by AED reservesThe stablecoin issuer outlined that each token will be “fully backed by liquid UAE-based reserves.” Tether further maintained that the back-end management of the new token will adhere to the firm’s “transparent and robust reserve standards,” and that “every Dirham-pegged token is tied to the value of the AED, providing stability and confidence in its value.”  Tether dominates the stablecoin market where USDT accounts for $117 billion, against a backdrop of an overall stablecoin market valued at $169 billion.  Perennial skepticsThe company has perennially faced criticism for a lack of transparency relative to the backing of its USDT stablecoin, given its policy of providing attestation reports instead of fully comprehensive audits from a top-tier auditing firm. One of the firm’s critics, the pseudonymous X account @OccamiCrypto took to the social media platform to provide its reaction to this most recent development, stating: "This Tether UAE stablecoin 'launch' will likely be as real as Tether’s promised audit and real time reserve reporting." The Tether critic went on to claim that the announcement is nothing more than "Tether spin," and that Tether has never attempted to become regulated in any market and that nothing would come of it. Another Tether critic, freelance journalist Jacob Silverman, commented on the development on X, stating:”Russian businessmen in UAE must be rejoicing.” His comment is suggestive of a common assertion that Tether is being used to facilitate the circumvention of sanctions. According to the firm’s press release, it believes that the product will enable users locally to access the benefits of the AED in digital form. The company claims that it will “streamline international trade and remittances, reduce transaction fees, and provide a hedge against currency fluctuations, thus playing a crucial role in the financial ecosystem of the UAE and beyond.” Tether’s partner Phoenix Group has been active in the crypto-sphere in recent times through mining. In December of last year, the company sealed a $380 million deal with Chinese mining equipment manufacturer MicroBT. Earlier that month, the company went public on the Abu Dhabi Securities Exchange (ADX). On face value, this development appears positive. However, UAE-based crypto and blockchain lawyer Irina Heaver recently warned that tightening regulations within the UAE may shut down crypto payments within the country. Heaver specifically cited the use of USDT as being under threat, with the potential for stablecoin-based transactions to be prohibited as new rules are ushered in.  

Celebrating a Decade of Crypto in South Korea: Experts Convene to Chart the FutureThe MK Virtual Asset Conference, an event held in Seoul yesterday to celebrate the 10th anniversary of South Korea’s cryptocurrency industry, convened experts, politicians, and stakeholders to discuss the future of blockchain and digital assets.The conference was hosted by Maeil Business Newspaper and its blockchain subsidiary Mblock, and sponsored by cryptocurrency exchange Korbit, the Korean Securities Association, and the Korea Derivatives Association. It served as a valuable opportunity to evaluate the current state of the crypto market and explore solutions for pressing challenges.Photo by Ciaran O’Brien on UnsplashInevitable rise of blockchainOne of the distinguished speakers at the event highlighted the inevitable rise of blockchain technology. Kim Yong-beom, CEO of Hashed Open Research, the research arm of Seoul-based crypto venture capital firm Hashed, said, “Blockchain is the antithesis of the modern financial and capital system. While traditional finance possesses its own merits, it also carries substantial transaction fees and is confined within national boundaries. It is only natural that such a counterforce has emerged to address these issues.”He continued, “Given that traditional finance properly responds to blockchain technology’s rise and overcomes its limits, blockchain may lose its competitive edge. However, if traditional finance fails to do so, blockchain will not be easily dismissed.”CEO Kim also highlighted the third section named “Blueprint for the Future Monetary System” of the Bank of International Settlements’ 2023 Annual Economic Report, which was published in June. The report states, “The BIS Innovation Hub, in partnership with central banks around the world, stands at the forefront of experimentation with CBDCs and tokenization.” According to Kim, the traditionally conservative financial institution, which had previously been skeptical about blockchain-based distributed ledger technology, has now shifted its position to be more accepting of blockchain.Importance of institutional investorsDuring the conference, an academic underscored the importance of allowing institutional investors to enter the virtual asset space. Kang Hyoung-goo, an assistant professor in the Department of Finance at Hanyang University Business School, pointed out that the crypto market, when primarily driven by retail investors, tends to favor volatile assets over stable ones. Due to this inclination, more individual investors are attracted to exchanges where speculative trading is a frequent occurrence. This dynamic creates a vicious cycle, he explained.Defining digital assetsOn a different note, Lee Han-jin, a lawyer at Kim and Chang, one of the largest law firms in the country, emphasized the crucial need to establish a legal definition of digital assets. In Lee’s view, digital assets exist in the form of data on the blockchain, setting them apart from traditional assets. He argued that without a legal definition outlining the nature of these assets, they could potentially devolve into entities that mislead the public, lacking both legal reliability and trustworthiness.Political voicesPoliticians also took the stage to share their thoughts. Back Hye-ryun, a Democratic Party of Korea member, expressed in her congratulatory speech her commitment to protecting virtual asset users through legislation. Kim Jong-min, another lawmaker from the same party, underscored the unstoppable nature of the blockchain trend. Yun Chang-hyun, a lawmaker of the ruling People Power Party, mentioned that while Bitcoin couldn’t establish itself as a key currency in an anarchic manner, stablecoins and central bank digital currencies (CBDCs) are now positioned to fill that role.Regulatory considerationsMeanwhile, Kim So-young, Vice Chairman of the Financial Services Commission, stressed the ongoing uncertainty surrounding the societal impact of cryptocurrencies and how governments should oversee them. He emphasized that the Korean government aims to establish a balanced framework to facilitate the responsible development of digital assets. Furthermore, he highlighted the necessity of collaborating with major economies due to the global nature of virtual assets.