Regulation
Cryptocurrency Laws Take Effect in South Korea
South Korea’s crypto framework, the Virtual Assets User Protection Act, went into effect on July 19. This law provides guidance to crypto exchanges operating in the country. Many have said that these laws, formulated by the country’s Financial Services Committee (FSC), are quite harsh.
A press release released from the FSC states: “The Financial Services Commission has 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 act aims to help “protect users’ deposits and virtual assets,” “regulate unfair trading activities, such as price manipulation,” and “empower financial regulators to supervise, inspect, and sanction VASPs.” It will also impose criminal penalties on those who “engage in unfair trading activities.”
VASPs, like exchanges, will need to rely on custodians or “banks” to securely store user assets and separate them from corporate-owned funds. They must also maintain enough liquidity to ensure the market is safe from volatility and honor user withdrawals. Considering hacks, exploits, and worst-case scenarios, the framework requires VASPs to remain insured so that users have the means to reclaim their funds in difficult situations.
Furthermore, VASPs must integrate an anti-money laundering policy surveillance system and always keep their information channels open to report suspicious behavior to the Financial Supervision Service (FSS).
“The FSS is authorized to inspect VASPs for compliance with their user protection duties, and the FSC is authorized to impose sanctions against rule violators by issuing corrective orders, suspending business activities, imposing administrative fines, and so on,” the press release reads.
VASPs will also be required to refrain from practices that lead to market manipulation, putting users’ investments at risk. The law also gives South Korean regulators the privilege of delisting assets that violate securities laws and AML requirements. Some exchanges have expressed concern about the disruption caused by blacklisting assets.