As a seasoned financial analyst with extensive experience in the cryptocurrency market and a deep understanding of South Korea’s regulatory landscape, I am thrilled to see the implementation of the new Virtual Asset User Protection Act (VAPA) this week. This long-awaited legislation is a crucial step forward for the South Korean crypto industry, which has grown significantly in recent years but lacked clear and comprehensive regulations.
Beginning this Friday, the long-awaited regulatory framework for cryptocurrencies in South Korea takes effect, following a year of preparation. Under this new legislation, local businesses operating in the crypto sector will be subject to enhanced regulations designed to safeguard investors and secure their assets.
South Korea’s New Crypto Regulatory Framework
On July 18, 2023, the Financial Services Commission (FSC) in South Korea enacted the Virtual Asset User Protection Act, incorporating “essential elements” from 19 previous crypto-related bills under review at the National Assembly.
In light of the expanding crypto industry and the requirement for a definitive regulatory structure, the latest Crypto Act has been passed. Prior to this legislation, the sector operated under the existing regulations outlined in the Reporting and Use of Specified Financial Transaction Information Act.
In 2021, this law underwent an update to include provisions for Virtual Asset Service Providers (VASPs), such as mandatory registration with the financial regulatory body for crypto businesses. However, it was deemed insufficient in effectively governing the industry and safeguarding investors, as evidenced by the Terra-LUNA and FTX collapses that occurred in 2022.
The regulatory focus on preventing money laundering through continuous regulation was criticized for being insufficient in dealing with unlawful trading practices like price manipulation. Additionally, it fell short in ensuring the safety of users’ assets.
As a researcher studying the cryptocurrency industry in South Korea, I’ve discovered that following the approval of the new regulatory framework, crypto firms were given one year to prepare for its implementation. During this time, financial authorities refined the details of the Act. The regulator expressed their commitment towards ensuring a smooth and seamless implementation of the law.
Based on the announcement, the Financial Services Commission (FSC) in South Korea formulated subordinate rules that outline the intricacies of the legislation they are entrusted with. Meanwhile, the Financial Supervisory Service (FSS) devised a plan for crypto businesses and initiated a trial run to assess the readiness of both regulatory bodies and Virtual Asset Service Providers (VASPs).
Virtual Asset User Protection Act Goes Into Effect
Starting on July 19, South Korea enforced the Virtual Asset User Protection Law. This legislation is designed to shield investors from different wrongdoings and secure their digital assets.
Under the latest cryptocurrency regulations, measures have been implemented to safeguard user funds, prohibit deceptive trading activities, and grant financial authorities the power to oversee market operations.
Cryptocurrency businesses are now obligated to hold client funds in banks and pay out corresponding interest to their deposit-holders. They are also tasked with maintaining a clear distinction between their own assets and those of their clients, while physically possessing the specific types and amounts of virtual assets deposited by their customers.
Starting from this coming Friday, Virtual Asset Service Providers (VASPs) are required to either carry insurance policies that shield them against liabilities caused by hacking or network malfunctions, or maintain a sufficient backup fund to manage such unforeseen circumstances.
Additionally, cryptocurrency businesses are advised to implement a monitoring system for potentially illicit transactions and promptly notify the Financial Services Commission (FSS) of any unusual trading behavior. Financial regulatory bodies, including the FSS and the Financial Services Commission (FSC), possess the power to oversee and conduct investigations on Virtual Asset Service Providers (VASPs).
South Korea’s financial regulators have the power to penalize individuals involved in unjust trading practices. The consequences may include legal penalties or additional fees.
In the end, the Financial Services Commission aims to create a solid base ensuring user safety and establishing order in the cryptocurrency market of the country through the proposed new regulatory framework.
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2024-07-20 12:11