Korean financial authorities to launch emergency inspection on Luna fallouts

[Photo by Han Joo-hyung]

South Korean financial authorities in an accelerated effort to contain the damages from crashed stablecoin Terra and its sister Luna will conduct an emergency on-site inspection of related financial service providers while discussing to set up legal grounds for regulating digital assets.

The country’s top financial policymaking body Financial Services Commission (FSC) on Tuesday met with authorities looking into the latest cryptocurrency crisis caused by stablecoins Terra and Luna and local digital asset service providers for a meeting with lawmakers, where they checked the status of legislating laws to regulate digital assets and protect investors.

The meeting is part of the Korean financial authorities’ efforts to contain the cryptocurrency market crisis caused by TerraUSD, a stablecoin supposed to be pegged to the U.S. dollar and its associated cryptocurrency Luna that crashed earlier this month, causing massive losses to investors.

Financial Supervisory Service, the financial watchdog, plans to conduct on-site inspection of Terraforms Lab, the company behind Terra and Luna, and the financial service providers for the collapsed stablecoins. The inspection is to be made despite the lack of legal power held by the Korean financial authorities on the latest crisis as related laws are still pending. Terraform Labs is also headquartered in Singapore, although it is de facto run by a Korean national.

Meanwhile, the Financial Services Commission is seeking to classify digital assets into two categories of securities and non-securities to expedite the process to set up the related laws. It has proposed to regulate securities-type digital coins under the existing capital market law and a regulatory sandbox, which allows innovative tech firms to experiment in a controlled environment under regulatory supervision.

For the non-securities digital assets, the FSC is proposing to establish a regulatory system for their issuance, listing, and protection measures to prevent unfair trade practice via bills pending at the National Assembly. In addition, the financial authority plans to set up a separate regulatory system for stablecoins and decentralized finance.

As of the end of 2021, Korea’s digital asset market was estimated at 55.2 trillion won ($43.7 billion), based on market capitalization, with daily turnover averaging at 11.3 trillion won from July to December. Active investors counted at 5.58 million and deposit for investment in Korean won amounted to 7.6 trillion won, according to data by Financial Services Commission’s Financial Intelligence Unit.

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