South Korea Implements Tough Measures with New Crypto Legislation
To safeguard investors and instill order in the virtual asset market, South Korea is enacting stringent laws set to take effect from July 19, 2024. The Virtual Asset User Protection Act, passed on July 18, 2023, encompasses regulations aimed at protecting users and promoting transparency in the crypto sphere.
Under this law, the South Korean government is cracking down on illicit activities such as market manipulation, illegal trading, and the use of undisclosed information in crypto transactions. Offenders could face severe penalties, including life imprisonment, particularly if their illegal profits exceed 5 billion Korean won (approximately $3.8 million).
The Financial Services Commission (FSC), South Korea’s top financial regulatory body, is overseeing the implementation of this law. It will supervise and inspect virtual asset business operators to ensure compliance with regulations. Additionally, the FSC has the authority to investigate and take action against unfair trading practices, further bolstering consumer protection efforts.
The legislation mandates that virtual asset service providers maintain over 80% of investors’ assets and deposits in reserve to ensure the stability and safety of crypto investments. Furthermore, these operators must manage investors’ deposits exclusively at banks to guarantee the security of their assets.
The Virtual Asset User Protection Act aligns with global trends in tightening regulations on cryptocurrencies, reflecting concerns over their potential misuse in illicit activities. The move comes as the United Nations recently highlighted the growing use of stablecoins like Tether in underground banking and money laundering activities in Asia.
South Korea’s proactive stance on crypto regulation also aims to address past industry setbacks. Following the collapse of Terraform Labs and its stablecoin Terra in 2022, which wiped out over $450 billion from the market, the country has been ramping up efforts to protect investors and stabilize the crypto landscape.
In addition to regulatory measures, South Korea is fostering an environment conducive to digital asset innovation. The government’s decision to exempt value-added tax (VAT) on digital asset trading from January 1, 2024, underscores its commitment to promoting the country as a digital asset hub.
As part of its future plans, South Korea intends to establish a comprehensive infrastructure for supervisory, inspection, and investigation tasks to ensure the smooth implementation of the Virtual Asset User Protection Act. The Financial Supervisory Service (FSS), in collaboration with virtual asset service providers, is gearing up to uphold regulatory standards and combat unfair practices in the crypto market.
By imposing strict penalties on crypto criminals and enhancing regulatory oversight, South Korea aims to foster investor confidence and uphold integrity in the burgeoning digital asset sector. The upcoming enforcement of the Virtual Asset User Protection Act marks a significant step towards achieving these objectives and fortifying the country’s position in the global crypto landscape.