- South Korea’s first cryptocurrency legislation is now in effect, aimed at protecting crypto investors.
- The Virtual Asset Protection Act officially came into force on July 18, after a one-year compliance period.
- As the second most-used fiat currency in the crypto market after the US dollar, the South Korean won significantly influences the global crypto trade, as per Kaiko data for Q1 2024.
South Korea’s groundbreaking cryptocurrency legislation aims to safeguard investors while setting stringent operational standards for exchanges.
Implementation of the Virtual Asset Protection Act
The Virtual Asset Protection Act, which took effect on July 18, marks a significant milestone in South Korea’s regulatory framework for cryptocurrencies. The law introduces comprehensive measures that mandate crypto exchanges to hold at least 80% of their digital asset reserves in cold storage, separate from corporate funds. This step is intended to reduce the risks associated with hacks and unauthorized access to investor funds.
Strengthened Safeguards for Investor Funds
In addition to stringent cold storage requirements, the new law requires crypto exchanges to deposit users’ fiat funds in licensed, local banks. Exchanges must also maintain cryptocurrency reserves equivalent to customer deposits, ensuring that investor assets are adequately protected. These measures are designed to enhance the safety and trustworthiness of the cryptocurrency trading environment in South Korea.
Real-time Monitoring and Fraud Prevention
The legislation mandates that cryptocurrency exchanges implement real-time monitoring systems to detect and report illegal trading activities promptly. The Financial Services Commission (FSC) has established a 24-hour surveillance network in collaboration with local exchanges to monitor suspicious activities continuously. These measures aim to deter fraudulent activities and ensure regulatory compliance within the industry.
Insurance and Reserve Fund Requirements
To further safeguard against potential risks such as hacking or liquidity crises, service providers are required to secure insurance or establish a reserve fund. This provision is expected to bolster the overall resilience of the cryptocurrency market in South Korea, providing a security net for investors and reinforcing the stability of trading platforms.
Conclusion
The implementation of South Korea’s Virtual Asset Protection Act represents a robust approach to regulating the cryptocurrency market. By enforcing stringent operational standards and establishing advanced monitoring systems, the new law aims to protect investors and foster a secure trading environment. As one of the largest cryptocurrency markets globally, South Korea’s regulatory advancements could set a precedent for other nations considering similar measures. Investors and industry stakeholders will be closely watching the effects of these regulations on market stability and investor confidence.
