The Financial Supervisory Service of Korea Examines Virtual Asset Exchanges’ Staking Services

Recently, the Financial Supervisory Service (“FSS”) requested domestic digital asset exchanges operating in the KRW market to prove the operating principle and marketability of their staking services. Three out of four domestic exchanges which operate in the KRW market and provide staking services confirmed that they have received a request from the FSS to investigate.

Such examination of exchanges’ staking services by Korean financial authorities followed the recent regulatory measures by the U.S. Securities and Exchange Commission (“SEC”) on Kraken for violation of securities laws. Although the legal systems of the United States and Korea are different, the regulatory institutions of Korea are closely tracking the Kraken case as it would be a noteworthy precedent for the virtual asset industry.

The SEC took issue with the fact that Kraken did not use 100% of the funds received from customers for staking but managed a mix of funds received from clients for the service with other funds on the exchange. In addition, the fact that it did not transparently disclose investment-related information, such as fees for staking, was also subject to sanctions.

However, Korean exchanges selected for the examination stated that they are using 100% of the funds raised from clients for staking only for that purposes and asserted that their staking services cannot be regarded as securities. They also added that they notify their customers that their staking services are not financial products that can be protected under the Financial Investment Services and Capital Markets Act or the Act on the Protection of Financial Consumers.

The industry participants believe that although the financial authorities’ recent decision to examine staking services may not be considered as an attempt to regulate, they believe that exchanges’ business plans, and hence the market, will inevitably be disrupted if the scope of regulations is expanded. It is currently known that the FSS plans to examine the staking services of the exchange through the task force team which was launched earlier in February to determine which virtual assets to be considered as securities.

Read More: The FSS Initiates a TF Team To Determine Which Virtual Assets Will Be Considered Securities