Institutional support expected to cushion crypto volatility, analyst says

Korea’s FSS to Collect Public Comments on Financial Statement Guidelines for Virtual Asset EntitiesThe South Korean Financial Supervisory Service (FSS) has revealed a set of exemplary financial statements aimed at clarifying the disclosure requirements of virtual asset-related entities. These guidelines have been designed to align with the Korean version of International Financial Reporting Standards (K-IFRS), which was established by the Korea Accounting Institute (KAI).It was reported earlier this month that the Financial Services Commission (FSC) brought forward these regulations to tackle accounting uncertainties within the blockchain industry.The main goal of these exemplary guidelines is to help entities provide financial statement readers with essential information regarding virtual assets. This includes details about the reserve amount held by virtual asset issuers and information about the virtual assets held by virtual asset service providers (VASPs).Photo by Kelly Sikkema on UnsplashPresentation sessionsTo ensure effective dissemination and understanding of these guidelines, the FSS, KAI, and the Korean Institute of Certified Public Accountants (KICPA) have planned presentation sessions. These sessions will take place from July 26 to August 11, which will involve visits to VASPs, listed companies, and accounting firms. Valuable feedback and suggestions from these stakeholders are anticipated, as the events encourage open two-way communication and welcome participation from anyone interested.Discussion meetingsTo further refine the ideas put forward during the presentation sessions, two separate discussion meetings with experts are scheduled for September and October. The recommendations gathered from the industry will undergo a careful review by experts and be thoughtfully incorporated into the guidelines.The FSS will finalize the guidelines in cooperation with the FSC, and the Securities and Futures Commission under the FSC will review them and give approval for their implementation. This is expected to take place between October and November.The FSC has stated that these exemplary guidelines are currently in their preliminary stage and open to potential changes during the public comment period. Additionally, companies have the flexibility to make necessary adjustments to these practice guidelines to suit their specific needs and requirements.Issuers, holders, exchangesThe exemplary practice guidelines are specifically targeted at three types of entities: virtual asset issuers, virtual asset holders, and virtual asset trading exchanges.For virtual asset issuers, providing essential information about their virtual assets is a key requirement. This information should encompass their business models, accounting policies, obligations (e.g. whitepapers), and the current status of their projects. Such details should be disclosed in the annotations of their financial statements. Furthermore, revenue generated from the sales of virtual assets must be recognized, and any changes to their obligations should be duly noted. Moreover, disclosure of the reserved amount of issued virtual assets and their intended usage plan is mandatory.Companies holding virtual assets must provide information regarding accounting policies, the total value of assets held, the reasons behind their holdings, and any gains or losses incurred. Additionally, holders are obligated to disclose risks associated with virtual assets and their potential impact.Virtual asset trading platforms, such as exchanges, are mandated to disclose not only their own virtual asset holdings but also those held on behalf of their customers. This disclosure should encompass detailed information about their accounting policies, the total value of assets under their custody, associated risks, and the involvement of third-party custodians. In particular, the platforms must indicate whether they treat customer assets under their custody as assets or liabilities and provide a clear rationale for such classification in the annotations of their financial statements.

The CEO of Hong Kong’s central banking institution, the Hong Kong Monetary Authority (HKMA), has outlined that the introduction of the Chinese autonomous territory’s Stablecoins Ordinance on Aug. 1 will criminalize the unlicensed promotion of stablecoins. In an article published on the HKMA website on July 23, CEO Eddie Yue stated:”According to the Ordinance, starting from the commencement date, it will be illegal for any person to offer any unlicensed fiat-referenced stablecoin (FRS) to a retail investor, or actively market the issue of unlicensed FRS to the public of Hong Kong.”Photo by Manson Yim on UnsplashSubject to fine & imprisonmentIf an individual is found to have promoted an unlicensed stablecoin, they will be subject to a fine of HK$50,000 ($6,400) and imprisonment of up to six months. Yue warned the public to remain vigilant and to exercise caution if they come across marketing material related to an unlicensed stablecoin offering. The HKMA CEO is conscious of the fact that stablecoins are an emerging payment instrument that is being gradually integrated into the mainstream financial system. However, he feels that some discussion on stablecoins has been overly idealistic. Yue outlined that interactions with the few dozen institutions that have reached out to the HKMA with regard to stablecoin licensing have led him to believe that “many proposals remain conceptual.” He claimed that many of the institutions putting forward these proposals “fail to put together viable and concrete plans as well as implementation roadmaps, let alone demonstrate their awareness of risks and competence in managing them.” Limited license issuanceYue believes that in many instances, these institutions would be better served to collaborate with stablecoin issuers rather than becoming stablecoin issuers themselves. It’s on that basis that the HKMA will only grant a handful of stablecoin issuer licenses. Bloomberg reported that in the region of 50 companies have been seeking to apply for stablecoin licensing in the city, with the HKMA likely to approve around 10 licenses. It referenced particular interest from Chinese brokerages and a related move recently by asset management firm ChinaAMC in launching a yuan-denominated tokenized money market fund that facilitates subscriptions via stablecoins.  Significant Chinese businesses such as JD.com and Ant Group have been preparing to acquire stablecoin licensing in Hong Kong. Chinese stablecoin urgencyIn its Asia Morning Briefing, CoinDesk pointed out that in 2021, the Chinese authorities had been critical of the development of global stablecoins, preferring instead to concentrate on their own central bank digital currency (CBDC), the digital yuan. However, it asserts that “Beijing’s caution on stablecoins is giving way to a sense of urgency.” Animoca Group President Evan Ayuang told the publication that China’s interest in stablecoins is on the rise. Ayuang asserted that actions taken by the Trump administration in the U.S. related to stablecoin policy are “pressuring China to act a lot faster.” Developments in Hong Kong are relevant in the context of China’s newfound interest in stablecoins. Lily King, chief operating officer (COO) at crypto custodian Cobo, stated recently that Hong Kong continues to be a testing ground for mainland China.  In keeping with that outlook, analysts at Morgan Stanley recently asserted that yuan-denominated stablecoin projects launched in Hong Kong would potentially serve as a developmental stablecoin sandbox for mainland China.

KakaoBank to Conduct Routine Due Diligence on Crypto Exchange CoinoneKakaoBank, one of South Korea’s Internet-only banks, is set to conduct a routine due diligence examination on cryptocurrency exchange Coinone from May 8 to 9, according to crypto media Digital Asset.Photo by Markus Winkler on UnsplashThe mobile bank told Digital Asset that the forthcoming due diligence is unrelated to either the alleged illicit token listings involving former Coinone employees or the exchange’s sole relisting of the WEMIX token in February, which had been delisted from major Korean crypto exchanges due to questionable information about the token’s circulating supply.In Korea, crypto trading platforms supporting Korean won trading are legally obligated to obtain real-name bank accounts from a bank. Last August, KakaoBank signed a one-year contract with Coinone to provide such accounts to the exchange, and the bank will need to decide whether it will extend the contract before August this year.A Coinone official said that the exchange has not undergone any routine due diligence checks from KakaoBank since the contract was signed last year.The upcoming examination is expected to address concerns stemming from rumors that KakaoBank might reconsider its contract with Coinone in light of the bribery scandal that involved two former Coinone personnel and two brokers.