South Korea mandate companies to disclose crypto holdings and profits
South Korea’s Financial Services Commission (FSC) has revealed new accounting supervision guidelines around digital assets, which will come into effect from January 2024.
These rules will require local companies that issue or hold cryptocurrencies to provide detailed disclosures related to crypto assets in their financial statements. There will be also mandated clarity on the timing and criteria for recognizing profits from the sale of virtual assets to address the previous discrepancy between companies and auditors about relevant accounting policies.
Under the regulations, companies will be obligated to include specific information in their disclosures in their balance sheet and financial reports. This includes information on the quantity and characteristics of their crypto tokens, their business models in the crypto business, and internal accounting policies governing the sale of cryptocurrencies and associated profits.
The draft version also outlines the scope of crypto assets that need to be reported. These reportable holdings include fungible assets that are based on distributed ledger technology or a similar technology, as well as assets that are issued using cryptography.
Additionally, the guidelines encompass security tokens, which are digitized securities falling under the purview of the Capital Markets Act. The FSC said these measures aim to enhance transparency and accountability in the cryptocurrency industry, ensuring that relevant information is disclosed to investors and stakeholders.
The new regulations come nearly two months after a cryptocurrency scandal involving lawmaker Kim Nam-kuk on charges related to campaign finance violations, tax evasion, and the concealment of criminal proceeds.
The national assemblyman allegedly conducted numerous crypto transactions which the prosecutors suspect were used for money laundering purposes.
South Korea’s Financial Intelligence Unit, the country’s watchdog of the finance and crypto sectors, detected suspicious activity in Kim’s crypto transactions and alerted local prosecutors last year. In a specific instance, Kim exchanged 510,000 Wemix coins, valued at approximately 3.6 billion Korean won (around $2.7 million), for KPS tokens in February 2022.
Nam-kuk, a member of South Korea’s National Assembly, liquidated additional KRW 6 billion ($4.54 million) worth of cryptocurrencies before the implementation of the Financial Action Task Force’s “Travel Rule.” He allegedly sold his digital assets without making proper disclosures to the authorities.
The lawmaker, who announced today his departure from the Democratic Party, claimed that he did not cash out his digital assets but instead transferred them to another exchange. In his defense, Kim also argued that he was not obliged to report such activity to the authorities.