Regulation
South Korean Cryptocurrency Laws Come Into Effect
South Korea’s regulatory framework for cryptocurrency, the Virtual Asset User Protection Act, went into effect on July 19. The regulations provide guidance to cryptocurrency exchanges operating in the country. Many have said that the laws, formulated by the country’s Financial Services Committee (FSC), are stricter.
A press release issued According to the FSC, “The Financial Services Commission announced that the Virtual Asset User Protection Act, which aims to establish a healthy order in the virtual asset market and ensure the protection of users, will come into force from July 19.”
The law aims to “protect users’ deposits and virtual assets,” “regulate unfair business activities, such as price manipulation,” and “authorize financial regulators to supervise, inspect, and sanction VASPs.” In addition, it provides for criminal prosecution of those who “engage in unfair business activities.”
VASPs, like exchanges, will need to rely on custodians or “banks” to securely store users’ assets and segregate them from company-held funds. They must also store enough liquidity to ensure the market is safe from volatility and honor user withdrawals. Accounting for hacks, exploits, and worst-case scenarios, the framework requires VASPs to remain insured so that users have the means to claim their funds in the event of a dire situation.
In addition, VASPs must integrate an anti-money laundering policy. Surveillance system and to keep their information channels always open to relay any suspicious behavior to the Financial Supervisory Service (FSS).
“The FSS is authorized to inspect VASPs to ensure that they are complying with their user protection obligations, and the FSC is authorized to sanction violators by issuing corrective orders, issuing a suspension of business operations, imposing administrative fines, etc.,” the press release reads.
VASPs will also have to refrain from practices that lead to market manipulation, jeopardizing users’ investments. The law also gives South Korean regulators the privilege to delist assets that violate securities laws and anti-money laundering requirements. Some exchanges have expressed concern about the hassle caused by blacklisting assets.