South Korean Regulator Is Probing Crypto Staking Services

Regulation South Korea Staking

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Tim Alper

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Tim Alper

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Tim Alper is a British journalist and features writer who has worked at Cryptonews.com since 2018. He has written for media outlets such as the BBC, the Guardian, and Chosun Ilbo. He has also worked...

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October 23, 2023

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A top South Korean financial regulator has launched a probe into domestic crypto staking services. And crypto exchanges are concerned this means new staking-related regulations could be incoming.

The media outlet News1 reported that the Financial Supervisory Service (FSS) has “recently requested” that some of the country’s top exchanges cooperate with an investigation into their staking operations.

At least three of the nation’s four biggest exchanges – Upbit, Bithumb, Korbit, and Coinone – confirmed that they had been contacted by the FSS recently regarding staking, News1 claimed.

An unnamed official at one of the exchanges said that the FSS had sent the trading platform “a request for data related to staking services.”

An employee at another of the three exchanges stated that they had sent FSS staking-related data “in the third week of February” this year.

The FSS did not comment on whether or not staking regulations would be forthcoming. But a spokesperson admitted that the regulator was making inquiries on the matter. The regulator suggested that an outright ban on domestic staking was not currently being considered.

Why South Korean Regulator Is Taking an Interest in Crypto Staking

Earlier this month, United States regulators launched a legal case against staking providers. The exchange Kraken was probed over possible securities violations, and Coinbase CEO Brian Armstrong claimed the Securities and Exchange Commission (SEC) was attempting to “get rid of crypto staking in the US.”

1/ We're hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.

— Brian Armstrong (@brian_armstrong) February 8, 2023

The media outlet noted that the recent SEC move had drawn a reaction in Seoul. The FSS apparently wants to ensure domestic staking providers are staying on the right side of the law.

Domestic exchanges have claimed that they do not use customer funds to pay out staking earnings – and that exchanges’ own tokens are kept separately from those belonging to customers.

But regulators appear to be keen to resolve the question of whether staking services can be legally construed as a form of “securities” trading.

Further developments from the United States in regard to whether some cryptoassets can be viewed as securities could influence the outcome of legal battles in South Korea.

South Korea prosecutors this week said they viewed the SEC’s recent filing against Terraform Labs and its CEO Do Kwon as a “positive development.” The SEC has accused Kwon and company executives of “securities” violations. The regulator is now awaiting a response from the US judiciary.