According to the VAUP legislation, the Financial Services Commission (FSC) will have the authority to supervise crypto operators as well as crypto custodians.
South Korea has now implemented its first independent digital asset law in order to strengthen investor protection in the region. This development comes one year after the country’s largest internal collapse of the Terra ecosystem last year that battered the $2 trillion cryptocurrency market.
On Friday, the South Korean parliament passed the Virtual Asset User Protection legislation, merging a total of 19 cryptocurrencies. The legislation establishes clear definitions of digital assets and sets penalties for various violations, including the use of non-public information, market manipulation, and unfair business practices.
Under the legislation, the highest financial regulator – the Financial Services Commission (FSC) – has the power to supervise crypto operators along with crypto custodians. Also, the Bank of Korea will have the right to inspect such platforms. Furthermore, this bill will require backup funds, insurance coverage, and other necessary record-keeping. The rule will cover digital assets such as Bitcoin, however, existing capital market laws will be applicable to tokens that are considered securities.
When violating the new rules, individuals could face a minimum of one year in prison or significant fines. For example, the Financial Services Commission has the power to impose fines of twice the amount of profits obtained through unfair business practices.
Reforming the crypto industry in South Korea
Last year, the collapse of Terraform Labs eroded $40 billion from investor wealth. Terra Do Kwon’s founder is now facing jail time in Montenegro.
Aside from the Kwon-related fallout, investors were also reminded of the ongoing risks in the digital asset sector when two South Korean-linked cryptocurrency lenders temporarily suspended withdrawals in June, one after another.
In March, a high-profile murder case in Seoul linked to losses in cryptocurrency investments underscored the need for politicians to speed up implementation of the new regulations. Speaking about the development, Lee Soo-ryong, general secretary of the Korea Blockchain Foundation Promotion Association in Seoul, said He said:
We welcome the authorities’ attempt to build order. But the law in general is still stuck in the perspective of traditional finance in terms of regulating cryptocurrencies.”
In April, South Korea saw its monthly cryptocurrency trading volume drop significantly, dropping to around $38 billion from its peak of $200 billion two years earlier, according to data from CCData. However, the country is still known for the occasional virtual asset bout.
Countries around the world are stepping up efforts to regulate digital assets. Regions such as Hong Kong and Dubai are striving to attract cryptocurrency investments, while the European Union recently approved the regulation of Pioneer Markets for Crypto Asset (MiCA). The US agencies also took action in the wake of a series of incidents, including the bankruptcy of the FTX exchange.
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Bhushan is a financial technology enthusiast with a good knack for understanding financial markets. His interest in economics and finance has turned his attention towards the new emerging Blockchain technology and Cryptocurrency markets. He is persistent in the learning process and keeps himself motivated by sharing the knowledge gained. In his spare time he reads fantasy and thriller novels and occasionally explores his culinary skills.
