- This Friday, South Korea implements its first comprehensive crypto regulatory framework after a year-long preparation period.
- The new law mandates rigorous compliance to enhance investor protection and asset security.
- South Korea aims to establish a strong regulatory environment with these measures, underscoring the importance of user protection in the evolving crypto landscape.
A comprehensive overview of South Korea’s new crypto regulatory framework and its implications for the industry.
South Korea’s New Crypto Regulatory Framework
On July 18, 2023, South Korea’s Financial Services Commission (FSC) enacted the Virtual Asset User Protection Act. The Act integrates significant provisions from 19 existing legislative crypto bills that were pending at the National Assembly. This new legal framework responds to the industry’s rapid expansion and the necessity for detailed regulation. Initially, the sector was governed by the Act on Reporting and Using Specified Financial Transaction Information, modified in 2021 to include registration requirements for Virtual Asset Service Providers (VASPs).
Reasons Behind the New Legislation
Despite previous attempts to regulate the sector, the 2021 act proved insufficient, particularly highlighted by the Terra-LUNA and FTX crises in 2022. Criticism focused on the framework’s inability to address unfair trading practices such as price manipulation adequately. Consequently, the FSC established a year-long transition period to develop specific regulations and ensure smooth implementation.
Detailed Provisions and Requirements
With the Virtual Asset User Protection Act in effect as of July 19, the legislation seeks to defend investors against various offenses and ensure the security of their assets. Key provisions include requirements for crypto firms to separate their assets from those of their clients, maintain customer deposits at banks, and provide interest payments on these deposits. Firms must also be insured against hacking incidents or hold reserve funds for such eventualities.
Enhanced Regulatory Supervision
The new law mandates that VASPs implement surveillance systems to monitor suspicious transactions and report any irregular activities to the Financial Supervisory Service (FSS). Furthermore, both the FSS and the FSC have been granted authority to inspect and supervise the activities of these firms comprehensively. This regulatory oversight includes the power to impose sanctions on entities found guilty of unfair trading practices, potentially leading to criminal penalties or financial surcharges.
Conclusion
South Korea’s new crypto regulatory framework represents a significant step towards a secure and orderly virtual asset market. By mandating strict compliance and enhancing oversight, the Financial Services Commission aims to provide robust protection for users and foster a stable regulatory environment. This comprehensive approach is expected to mitigate risks and ensure the integrity of the market moving forward.
