South Korea is making significant strides in enhancing the virtual asset landscape with the introduction of the Virtual Asset User Protection Act. This act, set to be implemented on July 19, 2024, aims to prioritize the security and integrity of users participating in the virtual asset market.
Under the guidance of the Financial Services Commission (FSC), South Korea has revealed meticulous regulations intended to strengthen the virtual asset market. The rules outlined in the Virtual Asset Industry Supervision and the Enforcement Decree of the Virtual Asset User Safety Act focus on specific measures to improve user safety and market stability.
In a recent announcement, the FSC has expanded the coverage of organizations affected by the act. Notable exceptions now include deposit tokens associated with Central Bank Digital Currency (CBDC) and non-fungible tokens (NFTs). This strategic decision aims to adapt to the changing landscape of the virtual asset ecosystem while ensuring effective enforcement of the law.
The regulations put a strong emphasis on user safety, highlighting the importance of selecting a reputable management institution and emphasizing the separation of customer deposits from corporate assets. Banks have been designated as deposit management entities to increase public trust and financial stability. The rules provide detailed procedures for handling user deposits and prioritize the safety of user assets.
To enhance security measures, the regulations require that over 80% of users’ virtual assets be stored in cold wallets, exceeding the previous threshold of 70%. This increased requirement serves as a safeguard against hacking, cryptocurrency fraud, and other online threats.
Virtual asset businesses are now required to secure insurance, mutual aid, or reserves to prepare for potential emergencies. This proactive approach demonstrates a commitment to being accountable in the event of incidents such as hacking or computer malfunctions.
In order to maintain market integrity, the laws establish specific disclosure requirements for significant undisclosed information, tailoring the framework to suit the nuances of the virtual asset market.
Owners of virtual asset businesses are explicitly prohibited from unilaterally halting deposits and withdrawals without valid justification. Clear definitions of exceptions are provided to empower users and prevent unwarranted disruptions.
Virtual asset exchanges are mandated to closely monitor suspicious transactions, creating a vigilant environment. Prompt reporting to regulatory agencies in cases of suspected unfair trade practices showcases a dedication to user protection and market integrity.
The Virtual Asset User Protection Act in South Korea represents a comprehensive effort to establish a secure and transparent environment for participants in the virtual asset market.