South Korea’s Financial Services Commission (FSC) announced that the Act on the Protection of Virtual Asset Users came into effect on July 19.
This law aims to create a robust regulatory framework for the virtual asset market and ensure user protection.
The Act was first initiated in March 2021 when the Act on Reporting and Using Specified Financial Transaction Information was revised, mandating virtual asset service providers (VASPs) to register with financial authorities.
While these revisions focused on anti-money laundering, they were deemed insufficient for addressing various unfair trading activities, such as price manipulation, and for safeguarding user assets.
Enacted on July 18, 2023, the Virtual Asset User Protection Act incorporates key provisions from 19 legislative bills pending at the National Assembly.
Since its enactment, subordinate regulations have been formulated, and VASPs have had a year to prepare for the law’s implementation.
Key provisions of the Act include safeguarding users’ deposits and virtual assets, regulating unfair trading activities, and granting financial regulators the authority to supervise, inspect, and sanction VASPs.
The law mandates that customers’ deposits be kept securely at banks, with VASPs paying interest on these deposits. VASPs are also required to separate users’ virtual assets from their own and maintain custody of the types and volumes of virtual assets held by their customers.
Additionally, VASPs must have insurance or a reserve fund to cover liabilities from hacking or other network issues.
VASPs must maintain a surveillance system for suspicious transactions and report these to the Financial Supervisory Service (FSS) immediately.
Following investigations by financial and legal authorities, those found guilty of unfair trading activities may face criminal charges or financial penalties.
The FSC and FSS will have expanded oversight capabilities, including the authority to issue corrective orders, suspend business operations, and impose administrative fines.
The FSC has prepared detailed subordinate statutes and provided VASPs with a roadmap for compliance.
Pilot tests and mandatory insurance products have also been introduced to ensure readiness for the new regulations.
The FSC anticipates that the implementation of the Virtual Asset User Protection Act will establish a secure environment for virtual asset users and create order in the market by enforcing stringent penalties for unfair trading activities.
The FSC will continue to collaborate with investigative authorities to enhance the law’s effectiveness.
Virtual asset users should note that the Act does not guarantee the safety of their assets.
Given the inherent risks and volatility of virtual assets, users are advised to make informed investment decisions and be cautious when dealing with unregistered service providers or engaging in over-the-counter and peer-to-peer transactions.
Users are encouraged to report suspicious trading activities to the FSS and any fraudulent schemes to the investigative authorities.
The new law represents a significant step in regulating the virtual asset market and protecting investors from illegal activities, reflecting South Korea’s commitment to establishing a well-regulated financial ecosystem.
Business News Asia
