South Korea has taken strides in fortifying the virtual asset landscape by introducing the Virtual Asset User Protection Act. Set to be enforced from July 19, 2024, the act is designed to prioritize the security and integrity of users engaging in the virtual asset market.
Under the leadership of the Financial Services Commission (FSC), South Korea has unveiled meticulous regulations aimed at bolstering the virtual asset market. The Virtual Asset Industry Supervision rules and the Enforcement Decree of the Virtual Asset User Safety Act outline specific measures to enhance user safety and market stability.
In a recent announcement, the FSC expanded the scope of organizations covered by the act. Notable exclusions now include deposit tokens linked to Central Bank Digital Currency (CBDC) and non-fungible tokens (NFTs). This strategic move seeks to balance the evolving nature of the virtual asset ecosystem while ensuring effective law application.
Emphasis on User Safety
The regulations stress the importance of selecting a trusted management institution, emphasizing the separation of customer deposits from corporate assets. Banks are designated deposit management entities to enhance public confidence and financial stability. The rules detail procedures for handling and applying user deposits and prioritizing user asset safety.
To fortify security safeguards, the regulations mandate that over 80% of users’ virtual assets be stored in cold wallets, exceeding 70%. This heightened requirement protects against hacking, cryptocurrency fraud, and other online risks.
Virtual asset businesses must obtain insurance, mutual help, or reserves to prepare for potential emergencies. This proactive approach underscores the commitment to accountability for events such as hacking or computer malfunctions.
To preserve market integrity, the laws establish precise disclosure requirements for undisclosed significant information, customizing the framework to the nuances of the virtual asset market.
Owners of virtual asset businesses are explicitly prohibited from unilaterally halting deposits and withdrawals without valid justification. Strict definitions of exceptions are outlined to empower users and guard against unwarranted interruptions.
Virtual asset exchanges are mandated to monitor anomalous transactions closely, fostering a vigilant environment. Prompt notification to regulatory agencies in cases of suspected unfair trade practices demonstrates a commitment to user protection and market integrity.
South Korea’s Virtual Asset User Protection Act signifies a comprehensive effort to create a secure and transparent environment for participants in the virtual asset market.