The Financial Services Commission of South Korea has announced that the implementation date of its Virtual Asset User Protection Law is July 19, 2024.
Last year, the law was established to safeguard users in the digital asset market and instill a regulated environment. This legislation embodies provisions aimed at curtailing unfair trading practices and enforcing financial authorities’ supervisory and sanctioning powers over the virtual asset market and its operators.
In preparation, the Financial Services Commission has prepared the draft detailing the enforcement decree and notices, setting the stage for a comprehensive legislative framework. Central to the new law is the obligation placed on virtual asset operators to ensure the safety of users’ assets. This includes the mandate for deposits and virtual assets to be managed by credible institutions, with banks identified in the draft decree as the managing bodies due to their stability and reliability.
Rules and consequences of violations of new laws.
The decree mandates that a significant portion of digital assets, precisely 80% or more of their economic value, must be stored in cold storage to safeguard against cyber threats. Additionally, operators must engage in measures like insurance, mutual aid, or reserves to cover incidents such as hacking, with a set compensation limit pegged at a minimum of 5% of the offline-stored virtual assets’ economic value.
The law also takes a firm stance against the misuse of undisclosed information, market manipulation, and fraudulent trading, prescribing criminal penalties or fines for such violations. The enforcement framework allows fines ranging from three to five times the amount of undue gains, with severe offenses potentially leading to life imprisonment for gains exceeding 50 billion won.
The FSC asserts that, given the virtual asset market’s susceptibility to high volatility and the potential for significant user harm, the legislation advocates for stringent penalties and active collaboration with law enforcement to deter illegal activities. The reorganization of the Financial Supervisory Service’s reporting center into the “Virtual Asset Unfair Trading and Investment Fraud Reporting Center” demonstrates measures to monitor and address unfair trading practices.
Digital asset service providers such as exchanges and other crypto services are being provided with a monthly regulatory compliance roadmap and checklists to facilitate their preparation for the law’s requirements.
Korean authorities have undergone a crackdown on digital asset providers over the past months. Earlier this week, HaruInvest executives were arrested after halting withdrawals from its crypto deposit service last year.
The Korean FSC stated that feedback received during the legislation’s advance notice period is being actively reviewed. Furthermore, the “Virtual Asset Investigation Business Regulations,” due for announcement later this month, will outline detailed procedures for the surveillance of transactions, investigations, and the imposition of fines, fortifying the legal landscape against market manipulation and unfair trading practices.