South Korea's First Crypto Investor Protection Law
South Korea has enacted its first crypto investor protection law, the Virtual Asset User Protection Act, which came into force on July 19, 2024 ¹. The law aims to protect crypto investors and prevent unfair trading practices ¹. Here are some key points about the law:
- Definition of Digital Assets: The law defines digital assets as electronic tokens with economic value that can be traded or transferred electronically ¹.
- Exclusions: The law excludes non-fungible tokens and central bank digital currencies ¹.
- Protection of Users' Funds: Crypto exchange operators must deposit users' funds in financial institutions, such as banks, to protect them in the event of bankruptcy ¹.
- Insurance and Reserves: Exchanges must also pay interest on these deposits and obtain insurance or set aside reserves to cover potential losses ¹.
- Cold Wallets: Exchanges are required to keep some of their users' virtual assets in cold wallets to protect against hacking and system failures ¹.
- Monitoring and Reporting: Exchanges must monitor and report abnormal transactions, such as unusual price movements or trading volumes, to financial authorities ¹.
- Penalties: Violation of the new rules is subject to fixed-term imprisonment of not less than one year or major fines ².
Background
The law was passed in response to the Terra-Luna crash and FTX's collapse, which highlighted the need for greater regulation and protection for crypto investors ¹. South Korea has been actively working to regulate the crypto industry, with the Financial Services Commission (FSC) and the Bank of Korea playing key roles in overseeing crypto operators and custodians ³.
