Bitrabo Editorial
Recently, South Korea has implemented its first crypto regulatory framework, requiring stricter compliance from firms to ensure investor protection and safeguard their assets.
South Korea’s New Crypto Regulatory Framework
The Virtual Asset User Protection Act was passed by South Korea’s Financial Services Commission on July 18, 2023, integrating key provisions from 19 existing legislative bills to address the industry’s growth and need for a robust regulatory structure.
Previously, the crypto industry in South Korea operated under the Act on Reporting and Using Specified Financial Transaction Information. However, this framework was insufficient to effectively regulate the sector and protect investors, as evidenced by incidents like the Terra-LUNA and FTX collapse in 2022.
In response to criticisms of inadequate regulation, the new law aims to address various unfair trading activities and ensure the safety of users’ assets.
After a one-year preparation period, crypto firms in South Korea had to comply with the new regulations, with the authorities providing detailed guidelines and conducting pilot tests to facilitate a smooth transition.
Virtual Asset User Protection Act Goes Into Effect
On July 19, the Virtual Asset User Protection Act came into force, aiming to shield investors from offenses and secure their assets through measures such as deposit protection and supervision of trading activities.
Under the new framework, crypto companies must ensure customer deposits at banks, separate client assets, and maintain virtual asset reserves equivalent to customer holdings. Additionally, they are required to be insured against hacking incidents or have reserve funds for contingencies.
Furthermore, firms must monitor suspicious transactions, report irregular activities to financial regulators, and comply with oversight from authorities like the Financial Supervisory Service and the Financial Services Commission.
Sanctions can be imposed on entities engaging in unfair trading practices, with penalties ranging from criminal charges to financial fines, all in the interest of establishing a secure environment in the virtual asset market.