- The Virtual Asset User Protection Act got one year to iron out the kinks in the regulations.
- In tandem with the new legislation, the FSC has developed a 24-hour monitoring network.
The first cryptocurrency regulatory framework in South Korea is currently up and operational. Prioritized in the wake of the catastrophic 2022 crypto market crashes at Terra-Luna and FTX, the new regulations aim to provide investor protections.
After receiving formal approval on July 18, 2023, the Virtual Asset User Protection Act got one year to iron out the kinks in the regulations. The measure makes it more difficult to trade digital assets. Now that it’s the law in South Korea, service providers must store cryptocurrency deposits held by their customers in cold storage, separate from their own funds.
Stringent Compliance Mandatory
Moreover, in addition to keeping reserves of cryptocurrencies equivalent to the quantity and kind of customer deposits, exchanges are required to delegate custody of user cash deposits to a licensed local bank. In addition, Korean law now mandates that crypto services either have sufficient insurance. Or set aside money in case of hacks or liquidity issues.
In addition to safeguards to protect user funds, the legislation requires exchanges to have real-time monitoring systems. This is to notify any suspicious or unlawful trading activity. The country’s leading financial regulator, the Financial Services Commission (FSC), has threatened to penalize or suspend businesses that fail to comply with the new regulations.
Furthermore, in tandem with the new legislation, the FSC has developed a 24-hour monitoring network in partnership with regional exchanges. In order to detect and prevent fraudulent behavior in the bitcoin market.
At the same time, legislators in South Korea are debating the specifics of the second half of the virtual asset law, which was originally intended as a two-part bill.
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