South Korea’s primary financial regulatory body, the Financial Services Commission (FSC), has announced new guidelines that will necessitate corporations dealing with or owning cryptocurrencies to provide comprehensive crypto disclosures in their financial statements starting in 2024.
Quick facts:
- South Korea’s FSC requires companies to provide a detailed crypto disclosure starting in 2024.
- Firms holding cryptocurrencies for investment will need to disclose details such as token classification, book value, and market value of their holdings.
- New guidelines clarify that companies can recognize the sale of issued cryptocurrencies as profit once all obligations to the cryptocurrency holder, such as perks and rewards, are fulfilled.
The FSC released a statement outlining the new legislation. According to the document, companies involved in issuing or holding cryptocurrencies must adhere to new accounting standards set to come into effect in January 2024.
Overview of South Korea’s new guidelines for crypto asset disclosures
The legislation, which consists of 19 crypto-related bills, empowers the FSC and the Bank of Korea to supervise crypto operators and asset custodians. It also enables authorities to impose penalties in instances of unfair trading of virtual assets.
Companies owning cryptocurrencies for investment purposes will have to disclose information related to the token’s classification, book value, and market value. This move is expected to improve transparency in the cryptocurrency market and protect investors.
The new guidelines also clarify that the sales of virtual assets will only be recognized as profit once the company has fulfilled all obligations to its token holders. This clarification is expected to resolve historical disagreements between companies and auditors regarding the timing and criteria for recognizing profits from the sale of virtual assets.
According to the FSC, guidelines for audit procedures are currently being developed. The Korea Accounting Standards Board approved the draft rules on July 7.
The new rules are expected to encourage the growth of South Korea’s local crypto industry. South Korean investors account for a significant portion of the global crypto market, according to data from 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.
Potential benefits for the growth of South Korea’s local crypto industry
The issue of transparency in cryptocurrency accounting is becoming increasingly critical due to the rising rate of cryptocurrency-related crime worldwide. The total value of cryptocurrencies received by illicit addresses in 2022 was US$20 billion, a significant increase from the US$5 billion annual total in 2017, according to Chainalysis.
Related: South Korea wants Government Officials to Report Crypto Holdings
In South Korea, the issue is particularly pressing in light of the situation involving blockchain-based game developer Wemade. The company, which has a market capitalization of $1.04 billion as per Money Today, caused significant confusion among investors when it revised its already-published financial statement to exclude 40% of its 2021 annual revenue.
The FSC’s move to mandate crypto disclosures represents a significant step towards improving transparency in the cryptocurrency market. By requiring detailed disclosures, the new rules are expected to protect investors while fostering growth in South Korea’s burgeoning crypto industry.
