South Korea’s Virtual Asset User Protection Act Takes Effect, Targeting Unfair Trading Practices

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.

South Korea's Virtual Asset User Protection Act, aimed at safeguarding crypto users and regulating the country's rapidly expanding digital asset industry, came into effect on July 19.

Prior to this law, South Korea's crypto activities were governed by the Act on Reporting and Using Specified Financial Transaction Information. This act was amended in March 2021 to mandate crypto service providers to register with the financial authority.

However, this law was primarily geared toward anti-money laundering enforcement and fell short in addressing broader crypto risks, such as unfair trading practices, which became evident following the catastrophic collapses of Terra-Luna and FTX in 2022.

To fill this gap, the government enacted the Virtual Asset User Protection Act in 2023, providing a one-year grace period to finalize the regulation's details.

According to a notice posted on the Financial Services Commission (FSC) website, the new crypto regulation protects users' deposits and digital assets by requiring virtual asset service providers (VASPs) to obtain insurance against liabilities arising from hacking and computer malfunctions.

In addition to maintaining at least 80% of user crypto deposits in cold storage, separate from their own funds, crypto exchanges are obliged to entrust the保管 of cash deposits to a licensed South Korean bank and to "actually possess the types and quantity of virtual assets that their customers hold."

The law also aims to curb unfair trading practices by mandating VASPs to operate a surveillance system for suspicious transactions "at all times" and to promptly report any market misconduct to the Financial Supervisory Service (FSS).

Those who illicitly profit from unfair trading practices may face imprisonment for 1 year or more or a fine of 3-5 times the profits. For offenses involving illicit profits exceeding 5 billion won ($3.6 million), the offenders could face up to lifetime imprisonment.

Continue reading about South Korea's plan to delay capital gains tax on crypto:

South Korea Mulls Crypto Tax Postponement for the Third Time

Stay informed on OKX's regulatory troubles in South Korea:

OKX Entangled in South Korean Crypto Crackdown: Investigation Launched

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