In an effort to protect cryptocurrency users, South Korea’s cabinet approved enforcement regulations for the Virtual Asset User Protection Act on June 25. The regulation, which will take effect on July 19, aims to protect cryptocurrency users and establish a healthy order in the virtual asset market.
(The Korean Financial Commission is established through the virtual assets department, with a total of 12 full-time personnel)
Main provisions of the "Virtual Asset User Protection Act"
According to South Korean media reports, the Virtual Asset User Protection Act defines virtual assets and lists what is not virtual assets. The law requires virtual asset service providers (VASPs) to securely store and manage users’ fiat deposits and virtual assets. Additionally, it introduces criminal penalties and fines for unfair trading practices involving virtual assets, such as insider trading and price manipulation.
(Altcoins fell across the board due to South Korea’s new law? Kimchicoin was delisted due to panic, and the Korean Financial Supervisory Commission denied it)
Virtual assets are valuable electronic certificates
The executive regulations stipulate the detailed procedures and methods for legal entrustment. It draws on the current Financial Information Act to define virtual assets as electronic certificates that have economic value and can be traded or transferred electronically. Certain electronic credentials that are regulated by other laws or pose no risk to users are excluded from the definition of virtual assets.
Exclusions from the Virtual Asset Definition: Deposit Tokens and NFTs
The regulations exclude e-bonds and gift cards under the Electronic Financial Transactions Act, and also add deposit tokens and non-fungible tokens (NFTs) to the exclusion list as they are considered new and low-risk to users. Digital assets. Additionally, the Financial Services Commission (FSC) will establish a Virtual Assets Committee to provide advice on policies and systems for virtual asset markets and VASPs. The committee will be chaired by the FSC Vice-President and include experts from relevant government departments and private industry.
Protect user deposits and generate income?
VASPs must deposit user funds with trustworthy institutions, specifically banks. These funds must be managed separately from the institution's assets, and under an agreement the bank invests the deposits in safe assets such as government and local bonds, with the proceeds paid to the VASP, which then passes the net proceeds to the user as a deposit usage fee.
Protecting user deposits in the event of VASP bankruptcy
In the event of VASP bankruptcy or deregistration, the designated bank must publish the payment details of user deposits through newspapers and its website. Banks must also verify and return deposits directly to users, ensuring the safety of user funds in adverse circumstances.
Storage requirements for virtual assets: 70% in cold wallet
VASPs must cold store at least 70% of users’ virtual assets to reduce the risk of being hacked. FSC can be set in the event of a major threat such as a hacker or business shutdown, and notify the VASP of different storage ratios.
Monitor and prevent unfair transactions
The Act requires VASPs to continuously monitor unusual transactions and authorizes the enforcement of regulations defining those transactions. Abnormal transactions include unusual fluctuations in virtual asset prices or trading volumes, as well as rumors or reports that may affect prices. The Financial Supervisory Service and VASP will develop self-regulatory guidelines to monitor these transactions and any suspected unfair transactions must be promptly reported to the financial authorities.
Disclosure of non-public material information
The Ordinance sets out the criteria for when information becomes "public". Information published in two or more general or specialized economic newspapers is deemed public at 6 a.m. the next day; information provided by broadcasters or news organizations becomes public information six hours after publication. Likewise, information on a VASP website becomes public information six hours after it is posted, and information on an issuer's website becomes public information 24 hours after it is posted, provided that the information is accessible to the public and remains posted for at least six months.
Criminal penalties and fines for unfair trading
The Act imposes criminal penalties and fines for unfair trading activities. The severity of the penalties, including imprisonment and fines, will be related to the improper gains from such activities, with the maximum penalty being life imprisonment. The regulations classify these gains into realized, unrealized profits and avoided losses, and detail the specific calculation methods for different types of unfair trading activities.
Circumstances under which an exchange can prevent users from trading
Regulations allow VASPs to block user deposits and withdrawals under legitimate circumstances such as system failures, maintenance or hacking incidents. It also includes administrative orders from relevant authorities and the status of funds related to illegal activities under the Proceeds of Crime Control Act.
(Don’t want to lose to South Korea! South Korea Financial Commission: There are as many as 6.45 million crypto asset users, and 70% of investments are less than US$800)
Officially announced in early July and implemented in late July
The regulations will be officially announced early next month and will be implemented on July 19 together with the Virtual Asset User Protection Act. The FSC will also develop new regulatory guidelines, expected to be approved on July 10, to oversee the virtual asset industry and market operations.
The FSC emphasizes that the implementation of this law and regulations will create a basic safety net for user protection and promote a sound market order. They pledged to make careful preparations to ensure smooth execution and strengthen user protection in the virtual asset market.
(South Korea is expected to establish a "Virtual Assets Section" by the end of June to protect user assets, and civil servants are not allowed to hold virtual assets)
This article South Korea approves virtual asset user protection law: 70% is placed in cold wallets, and insider trading will be criminally liable. First appeared on Chain News ABMedia.
