Regulation
South Korea’s new crypto framework comes into effect
South Korea’s first regulatory framework for cryptocurrencies came into effect on Friday after a year-long preparation period. The new law requires companies in the country to comply with stricter requirements to protect investors and their assets.
New regulatory framework for cryptocurrencies in South Korea
On July 18, 2023, the Financial Services Commission of South Korea (FSC) pass the Virtual Asset User Protection Act to mirror “key provisions” proposed under 19 pre-existing crypto legislative bills pending in the National Assembly.
The new Cryptocurrency Law was enacted in response to the growth of the sector and the need to establish a clear and comprehensive regulatory framework. Previously, the sector was regulated by the existing Law on the Reporting and Use of Specified Information on Financial Transactions.
This law was amended in 2021 to include certain requirements for virtual asset service providers (VASPs), including registration with the financial authority as a requirement for cryptocurrency businesses. However, this law was deemed inadequate to properly regulate the sector and protect investors, as demonstrated by the collapses of Terra-LUNA and FTX in 2022.
It has been repeatedly stressed that the regulatory framework focused on combating money laundering is not sufficient to enable the authorities to actively respond to various types of unfair business activities, such as price manipulation, and to ensure safe protection of users’ assets.
Following the approval of the new regulatory framework, cryptocurrency businesses in South Korea have one year to prepare for the implementation of the law while financial authorities finalized the details. The regulator said it had worked towards a smooth implementation of the law.
According to the press release, the FSC has prepared subordinate regulations “specifying the detailed provisions delegated by the law.” South Korea’s Financial Supervisory Service (FSS) has also provided a roadmap for cryptocurrency businesses and implemented a pilot test to “check the readiness of regulators and VASPs.”
FSC details some of the preparations for the new law implementations. Source: Financial Services Commission
Entry into force of the law on the protection of users of virtual assets
On July 19, the Virtual Asset User Protection Act came into effect in South Korea. The law aims to protect investors from various crimes and safeguard their assets.
The new cryptocurrency regulatory framework includes provisions to protect user deposits, regulate unfair trading practices and allow financial regulators to oversee the sector.
Cryptocurrency companies are now required to hold their customers’ deposits in banks and pay them fees in the form of interest payments on their deposits. The companies must also segregate their assets from those of their customers and “have in their possession the types and volume of virtual assets that their customers have.”
As of Friday, VASPs must be insured “against liabilities resulting from computer hacking or other network malfunction accidents” or have a reserve fund to cover such incidents.
Additionally, cryptocurrency companies must have a system for monitoring suspicious transactions and report any irregular trading activity to the FSS. Financial regulators, including the FSS and FSC, now have the power to supervise and inspect VASPs.
Financial authorities are now allowed to investigate and bring sanctions to VASPs. Source: Financial Services Commission
South Korean financial authorities may also impose sanctions on such individuals. guilty to engage in unfair business activities, which could result in criminal sanctions or additional penalties.
Ultimately, the FSC hopes that the new cryptocurrency regulatory framework will “establish a foundation for ensuring safe user protection” and “healthy order in the virtual asset market” in the country.
Bitcoin (BTC) is trading at $64,362 in the three-day chart. Source: BTCUSDT on TradingView
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