The Financial Services Commission (FSC) of South Korea declared that starting in July 2024, investors in digital assets will be entitled to earn interest on their deposits held at exchanges.

What Happened: These exchanges will be mandated to segregate customer deposits from their own assets and assign them to a bank. Furthermore, exchanges must store 80% of their own coin holdings in a cold wallet.

This policy will be detailed in the “Enforcement Decree and Supervisions Regulations of the Virtual Asset User Protection Act,” as per a report from a local Korean news outlet and Cointelegraph.

However, the regulation will not apply to NFTs and CBDCs. NFTs that function as a means of payment and are issued in significant volumes might fall under the virtual asset category and therefore be eligible for interest accrual.

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Why Does It Matter: NFTs are generally not viewed as assets suitable for generating interest or for investment purposes; rather, they are regarded more for their collectibility and ownership value. CBDCs are issued by central banks and thereby are subject to different regulations.

The legislative guidance does not allow blocking deposits or withdrawals unless directed by courts/financial regulators. It will also include rules that will assist in responding to hacks or other computer incidents. Virtual asset service providers will be required to sign up for insurance or accumulate reserves.

More than 5% of the economic value of virtual assets stored in a hot wallet must be insured with a compensation limit or accumulated as a reserve.

Also Read: South Korea Seeks Public Assistance In Reporting Unlicensed Crypto Exchanges

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