- South Korea’s new crypto law took effect on Friday.
- The law addresses oversight gaps of previous “subordinate” regulations.
- Crypto offenders could face up to life imprisonment under the new law.
South Korea’s Virtual Asset User Protection Act took effect on July 19, marking a significant step toward bringing the country’s burgeoning crypto industry within legal boundaries.
Previously, South Korea regulated crypto activities through the Act on Reporting and Using Specified Financial Transaction Information. The act was revised in March 2021 to introduce a requirement that crypto service providers register with the financial authority.
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This law, however, focused largely on enforcing anti-money laundering and was inadequate in responding to prevalent crypto risks such as unfair trading practices, as witnessed after the disastrous collapse of Terra-Luna and FTX in 2022.
To address the lacuna, the government approved the Virtual Asset User Protection Act in 2023 and gave it a one-year grace period to fine-tune the regulation details.
Korea’s Crypto Industry Under New Law
According to a notice on the Financial Services Commission (FSC) website, the new crypto regulation law protects users’ deposits and digital assets by requiring virtual asset service providers (VASPs) to insure themselves against liabilities resulting from hacking and computer failures.
In addition to safekeeping at least 80% of user crypto deposits in cold storage separate from their own funds, crypto exchanges are mandated to delegate the custody of cash deposits to a licensed South Korean bank and “actually have in their custody the types and volume of virtual assets their customers have.”
The law also tries to regulate unfair trading practices by requiring VASPs to maintain a surveillance system for suspicious transactions at “all times” and immediately report market malpractices to the Financial Supervisory Service (FSS).
Offenders who take profits from unfair trading practices risk imprisonment of 1 year or more or a fine of 3-5 times the profits. Offenders could face up to lifetime imprisonment if the amount of the illicit profits surpass 5 billion won ($3.6 million.)
Read about South Korea’s plan to delay capital gains tax on crypto:
South Korea Mulls Crypto Tax Postponement for the Third Time
Stay updated on OKX’s regulatory woes in South Korea:
OKX Caught in South Korean Crypto Crackdown: Probe Underway?
