South Korean customers of cryptocurrency exchanges will have a new ally in the Digital Asset User Protection Foundation, which is being set up to ease the return of funds stuck in defunct exchanges.
South Koreaâs Financial Services Commission (FSC) approved an initiative by the self-regulatory Digital Asset Exchange Joint Consultative Group (DAXA) to create the foundation. The foundation may begin activities in October.
Where did all the crypto exchanges go?
The FSC stated that 10 of the 22 cryptocurrency exchanges in South Korea have closed and another three have suspended operations, leading to concerns about the return of usersâ funds held by the nonfunctioning exchanges.
The safety of customersâ funds in the hands of the exchanges is also a concern as the âprivate keys to usersâ virtual asset wallets are stored at these exchange service providers.â Therefore:
âTo make sure that usersâ assets are safely protected and properly returned to their owners, it is necessary to have a more systematic management mechanism along with voluntary efforts from those closed down exchange service providers.â
The Digital Asset User Protection Foundation will consult with the exchanges, after which usersâ funds and virtual assets will be transferred to the foundation. From there, a bank will be chosen to hold usersâ cash, and a âKRW-based [South Korean won-based] exchange service providerâ â presumably one of the still functional crypto exchanges â will store and manage their virtual assets.
The foundation will then contact the users to inform them of the return process.
Government backs up the foundation
The Digital Asset User Protection Foundation will have an operating committee made up of representatives of the bank and exchange that will handle the cash and virtual assets, several government agencies and private sector experts. The government will back the foundation:
âFinancial authorities plan to provide relevant support to facilitate consultation [âŠ] regarding the matter of transfer of usersâ assets.â
For exchanges that cease operations in the future, âauthorities will guide them accordingly to transfer their customersâ assets to the foundation.â
Source: FSC Korea
South Korea enacted the Virtual Asset User Protection Act on July 19. Among the requirements of the act are that exchanges keep customer deposits in banks and keep customer virtual assets separate from their own.
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