South Korea Crypto Delisting Fears Addressed by New Guidelines

South Korea’s Digital Asset Exchange Alliance (DAXA) has announced comprehensive guidelines for the re-examination of more than 1,300 cryptocurrencies listed on local exchanges.

Effective July 19, 2024, this initiative seeks to allay fears of mass delistings by establishing standardized criteria and processes for deal support assessments.

DAXA Addresses Concerns About Crypto Investors With Measures To Prevent Unfair Delistings

DAXA and 20 domestic crypto exchanges jointly developed these guidelines, known as the “Best Practices for Supporting Digital Asset Transactions.” The guidelines include transaction support review processes, termination procedures and coin information disclosure requirements.

This step is in line with the enforcement of the Virtual Asset User Protection Act. It also aims to promote a safer and more transparent market for investors.

Read more: Cryptoregulation: What are the pros and cons?

The implementation of these best practices follows recommendations from South Korea’s financial authorities, including the Financial Services Commission and the Financial Supervisory Service. The National Assembly emphasized the need for a self-regulatory framework within the industry.

This led to the creation of a task force centered around DAXA. The task force has been working on the guidelines since October 2022, which includes feedback from various stakeholders. This includes academia and legal experts.

Historically, self-regulatory proposals within the industry, such as that of the Korea Blockchain Association, have faced limitations due to low participation and enforcement capabilities. However, current best practices are comprehensive. They address internal control improvements for exchanges, Korean white papers on digital assets and detailed disclosure methods.

One of the primary concerns among local investors is the possible delisting of digital assets in which they have invested. Since altcoins account for more than 60% of the South Korean market’s trading volume, the new measures could lead to a significant contraction of the local crypto market.

However, DAXA has assured that mass delistings are unlikely. Major domestic crypto exchanges that support Korean Won (KRW) deposits and withdrawals have been proactively applying these best practice review items since late 2023.

Accordingly, there should be no additional bulk delistings. Notably, in the first half of this year, these exchanges have already terminated trading support for 39 cryptocurrencies.

The six-month re-examination period aims to prevent unfair delistings. During this time, exchanges will systematically contact coin issuing foundations or public disclosure entities to collect the necessary information.

They will also allow enough time for explanations and procedures. Transaction support termination procedures will be conducted transparently, with announcements on each exchange’s home page.

DAXA also outlined its official position on implementing best practices to support new and existing digital asset transactions. Exchanges will assess both formal and qualitative criteria.

Formal criteria must be met without exception, while qualitative criteria will be comprehensively evaluated. Review will be done quarterly.

The criteria focus on issuer reliability, which ensures consistent disclosures about total issuance, circulation plans, business strategies and key investment factors without sudden changes. It also emphasizes user protection through the availability of detailed white papers and monitoring tools such as block explorers.

In terms of technology and security, it is crucial to promptly address security breaches, especially hacking, and to make the smart contract source code accessible for verification. Furthermore, all assets must comply with relevant laws and regulations, and avoid uses in illegal activities, including money laundering and terrorist financing.

“To address the issue of non-compliance with formal criteria by assets without a specific issuer (eg Bitcoin), an alternative review process is introduced for assets traded in regulated foreign markets for more than two years. These markets must be located in IOSCO [International Organization of Securities Commissions] member states with access regulations, supervision and transaction support assessments,” DAXA added.

Read more: How Regulation Affects Crypto Marketing? A complete guide

The new steps by DAXA and the exchanges involved are a big step towards making the crypto market in South Korea safer and more open. This effort aims to boost investor confidence and create a better market by applying strict review standards and making sure that information is shared openly.