Hassan Maishera
TL;DR
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The South Korean Virtual Asset User Protection Act was fully approved on Thursday, July 18th.
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The new crypto law seeks to protect cryptocurrency investors in the country.
South Korea Approves its Inaugural Crypto Law
The South Korean government has fully approved the Virtual Asset User Protection Act. This is the first crypto regulatory framework in the country and was tabled following the disastrous collapse of Terra-Luna and FTX in 2022.
The new law, which was fully approved on July 18th, focuses on ensuring safety nets for cryptocurrency investors. Per the act, cryptocurrency exchanges operating in the country will face stricter requirements.
Crypto service providers in South Korea are required to safekeep at least 80% of user crypto deposits in cold storage separate from their own funds. Furthermore, crypto exchanges will have to delegate the custody of users’ cash deposits to a licensed local bank and maintain cryptocurrency reserves equal in amount and type to customer deposits.
In addition to that, crypto service providers in South Korea must roll out adequate insurance or establish a reserve fund in preparation for hacks or liquidity crises. The government also requires exchanges to launch real-time monitoring systems to report irregular trading activities that could potentially be illegal.
Failure to abide by the new rules will see crypto companies face penalties or service suspension from the Financial Services Commission (FSC), South Korea’s leading financial regulator.
While speaking to The Block, Kim Hyoung-Joong, president of the local think tank Korea Fintech Society, pointed out that the new act could enable local blockchain solutions to expand globally. However, he believes that the new law needs to cover other areas of the Web3 ecosystem. He said,
“Korea has a policy that strictly separates the issuance of virtual assets and the distribution of virtual assets. The Virtual Asset User Protection Act regulates distribution. However, there is no law yet to regulate the issuance of virtual assets.”
The South Korean government has been cracking down on crypto exchanges in a bid to protect investors. Last month, the regulators said South Korean exchanges must establish a dedicated listing and delisting unit to evaluate the security, reliability, and regulatory compliance of listed cryptocurrencies.
The exercise could see South Korean crypto exchanges delist hundreds of altcoins while rigorously reviewing listed cryptocurrencies for transparency.
