South Korea Enforces Tougher Virtual Asset Rules

South Kora’s Financial Services Commission (FSC) announced early this week that new stringent regulations targeting illegal transactions involving virtual assets will be enforced.

The new legislation, known as the Virtual Asset Users Protection Act, mandates virtual asset exchanges to report illegal activities to the financial regulator. The Act stipulates that offenders could face life sentences if unlawful gains exceed 5 billion won.

The FSC now possesses the authority to impose fines or pursue legal actions following investigations by relevant authorities. In 2023, the FSC reported a nearly 49% year-on-year increase in suspicious transactions involving virtual assets, totaling over 16,000 cases.

The Virtual Asset Users Protection Act, which took effect on July 19, aims to establish a robust regulatory framework for the virtual asset market and ensure user protection.

This development builds on the March 2021 revision of the Act on Reporting and Using Specified Financial Transaction Information, which required virtual asset service providers (VASPs) to register with financial authorities and adhere to anti-money laundering measures.

However, it was found that these regulations were insufficient for addressing various unfair trading practices and ensuring the safety of user assets.

Enacted on July 18, 2023, the Virtual Asset Users Protection Act incorporates provisions from 19 legislative bills and has undergone a year-long preparation period to develop subordinate regulations and give VASPs time to comply.

Key provisions of the Act include safeguarding users’ deposits and virtual assets, regulating unfair trading activities such as price manipulation, and granting financial regulators the power to supervise, inspect, and sanction VASPs.

VASPs are required to keep users’ virtual assets separate from their own and must have insurance or reserve funds to cover liabilities from hacking or network failures.

Additionally, VASPs must maintain a surveillance system for suspicious transactions and report such activities to the Financial Supervisory Service (FSS).

The FSC and FSS will have enhanced oversight capabilities, including the authority to impose corrective orders, suspend operations, and levy administrative fines.

The FSC has prepared detailed subordinate statutes and offered guidance to VASPs through on-site consultations and pilot tests to ensure readiness for the law’s implementation.

The FSC expects the new law to provide a secure environment for virtual asset users and establish order in the market by enforcing severe penalties for unfair trading activities.

The FSC will continue to collaborate with investigative authorities to improve and effectively implement the law.

Virtual asset users should be aware that while the Act aims to enhance protection, it does not guarantee the safety of their investments, the FSC said in its announcement.

Users are advised to make cautious investment decisions, be wary of unregistered service providers, and report any suspicious activities to the FSS or investigative authorities.



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