In an effort to enhance industry transparency, South Korea’s top financial regulator, the Financial Services Commission (FSC), is requiring companies that issue or own cryptocurrencies to provide detailed crypto disclosures in their financial statements from 2024.
See related article: South Korea, Singapore, Thailand clarify crypto rules as U.S. in state of regulatory ‘warfare’
Fast facts
- The new rules, which will take effect from January 2024, will require cryptocurrency issuers to disclose information about the number and characteristics of their crypto tokens, as well as their business models and internal accounting policies regarding the sale of cryptocurrencies and associated profits.
- Companies that hold cryptocurrencies for investment purposes will also be required to disclose information about the token’s classification, book value, and the market value of their holdings.
- Previously, it was unclear whether or not a company could immediately recognize the sale of issued cryptocurrencies to a customer as profit. But with the new guidelines, companies will recognize sales as profit after completing all obligations to the cryptocurrency holder, such as the allocation of perks and rewards.
- The draft guidelines were reviewed and approved by the Korea Accounting Standards Board on July 7, according to the FSC’s announcement Tuesday.
- South Korean authorities believe that the new rules will improve the transparency of the cryptocurrency market and protect investors, while encouraging the growth of the local crypto industry.
- South Korean cryptocurrency investors account for a significant portion of the global market, according to crypto data platform Xangle. The Korean won was the third most-used currency in Bitcoin transactions after the U.S. dollar and the Japanese yen at the end of 2022.
- Transparency in cryptocurrency accounting is a topic of increasing concern as the rate of cryptocurrency-related crime continues to increase around the world. The total value of cryptocurrencies received by illicit addresses in 2022 was US$20 billion, up from the US$5 billion annual total in 2017, according to Chainalysis.
- In South Korea, the issue is particularly pressing due to blockchain-based game developer Wemade, which has a market capitalization of US$1.04 billion, according to local news outlet Money Today. Wemade caused major confusion among investors when it reversed its already-published financial statement to exclude 40% of its 2021 annual revenue, after its accounting firm deemed the sale of its WEMIX cryptocurrency not classifiable as revenue.
See related article: South Korea will require all public officials to disclose crypto holdings from 2024