Regulation
South Korea’s New Crypto Framework Goes Live
This Friday, South Korea’s first cryptocurrency regulatory framework went into effect 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.
South Korea’s New Cryptocurrency Regulatory Framework
On July 18, 2023, the Financial Services Commission (FSC) of South Korea past the Virtual Asset User Protection Act to reflect the “key provisions” proposed under 19 pre-existing cryptocurrency legislative bills awaiting approval by the National Assembly.
The new Crypto Act was enacted in response to the growth of the industry and the need to establish a clear and comprehensive regulatory framework. Previously, the industry was regulated through the existing Act on Reporting and Using Specified Financial Transaction Information.
This law was amended in 2021 to incorporate some requirements for Virtual Asset Service Providers (VASPs), including registration with the financial regulator as a requirement for cryptocurrency companies. However, this law was deemed inadequate to adequately regulate the industry and protect investors, as seen with the collapse of Terra-LUNA and FTX in 2022.
It has been repeatedly stressed that the regulatory framework focused on combating money laundering was not adequate to enable 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 companies in South Korea have one year to prepare for the implementation of the Act while the financial authorities were finalizing the details. The regulator said it had been working towards a seamless implementation of the law.
According to the press release, the FSC has prepared subordinate regulations “specifying detailed provisions delegated by law.” South Korea’s Financial Supervisory Service (FSS) has also provided a roadmap for cryptocurrency firms and implemented a pilot test to “test the readiness of both regulators and VASPs.”
FSC details some of the preparations for the new law implementations. Source: Financial Services Commission
Virtual Asset User Protection Act Goes Into Effect
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 empower financial regulators to oversee the industry.
Cryptocurrency firms are now required to hold customer deposits at banks and pay fees to their customers as interest on their deposits. Firms must also segregate their assets from those of their customers and “hold custody of the types and volumes of virtual assets that their customers have.”
From Friday, VASPs will have to be insured “against liabilities arising from cyber attacks or other network malfunction incidents” or have a reserve fund to cover such incidents.
Additionally, cryptocurrency companies should have a surveillance system for suspicious transactions and report any irregular trading activity to the FSS. Financial regulators, including the FSS and FSC, now have the authority 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 can also impose sanctions on those guilty of having engaged in unfair commercial activities, which could result in criminal penalties or additional sanctions.
Ultimately, the FSC expects the new cryptocurrency regulatory framework to “establish a foundation for providing secure protection for users” and “a solid 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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