Entry into force of the law on the protection of crypto investors in South Korea
Date: 2024-07-19 Author: Henry Casey Categories: IN WORLD
The first crypto regulation law has come into force in South Korea. This regulation was developed and put into effect on an expedited basis following the collapse of the Terra blockchain ecosystem and the FTX crypto exchange in 2022. The main purpose of the law is to ensure the safety of cryptocurrency investors.
The new law, known as the Virtual Asset User Protection Act, aims to combat fraud, market manipulation and insider trading. To achieve this, stricter requirements are being established for cryptocurrency exchanges and service providers.
Basic provisions of the law
1. Storing crypto deposits:
- Service providers are required to store at least 80% of users' crypto deposits in cold storage, separate from their own funds.
- Users' cash must be deposited with a licensed local bank.
- Suppliers are required to maintain cryptocurrency reserves equal in size and type to customer deposits.
2. Insurance and reserve funds:
- Crypto services are required to insure themselves or create a reserve fund to prepare for possible hacker attacks or liquidity crises.
3. Monitoring and reporting:
- Exchanges should establish real-time monitoring systems to report suspicious trading activity.
- The Financial Services Commission (FSC) has launched its own monitoring system to detect fraud in the crypto market.
4. Sanctions for non-compliance with the law:
- Companies that do not comply with the new requirements may face fines or suspension of operations.
- For fraud with damages exceeding 5 billion won, life imprisonment is provided.
The law regulates the distribution, but not the issuance, of virtual assets. Lawmakers are currently discussing regulation of issuers, as well as reconsidering the ban on institutional investing in cryptocurrencies and stablecoins.
Impact on the Korean crypto market
South Korea is one of the largest crypto markets in the world. According to Kaiko analysts, in the first quarter of 2024, the Korean won was the most commonly used fiat currency for cryptocurrency trading. However, in June, spot trading volume on Korea's largest exchange Upbit fell 45% to $30.4 billion, the largest drop among leading crypto trading platforms. The decrease is likely due to the entry into force of a new law on the protection of crypto investors.
South Korea's new crypto investor protection law represents an important step towards creating a safer and more transparent cryptocurrency environment. It aims to prevent fraud and market manipulation and protect the interests of investors. At the same time, legislators continue to work on further regulatory measures, which may lead to additional changes and improvements in the future.
