As per the VAUP legislation, the Financial Services Commission (FSC) will get the authority to oversee crypto operators as well as crypto custodians.
South Korea has now implemented the first independent bill for digital assets in order to boost investor protection in the region. The development comes one year after the country’s biggest implosion of the Terra ecosystem last year which triggered the $2 trillion crypto market rout.
On Friday, the South Korean parliament passed the Virtual Asset User Protection legislation, integrating a total of 19 crypto bills. The legislation establishes clear definitions for digital assets and sets penalties for various violations, including the use of nonpublic information, market manipulation, and unfair trading practices.
Under the legislation, the top financial regulator – the Financial Services Commission (FSC) – gets the power to oversee crypto operators along with crypto custodians. Also, the Bank of Korea will have the right to probe such platforms. Furthermore, this act would require reserve funds, insurance coverage, and other necessary record-keeping. The rule will cover digital assets such as Bitcoin, however, existing capital-market laws will be applicable to tokens deemed securities.
Upon the violation of the new rules, individuals may face a minimum of one year of imprisonment or significant fines. For instance, the Financial Services Commission has the authority to impose fines that are double the amount of the profits obtained through unfair trading practices.
Reforming South Korea’s Crypto Industry
Last year, the implosion of Terraform Labs led to the erosion of $40 billion in investors’ wealth. Terra founder Do Kwon is now facing a period in jail in Montenegro.
Apart from the fallout involving Kwon, investors were also reminded of the ongoing risks in the digital asset sector when two crypto lenders associated with South Korea temporarily suspended withdrawals in June, one after the other.
In March, a well-known murder case in Seoul that was connected to losses in crypto investments further emphasized the need for politicians to expedite the implementation of new regulations. Speaking on the development, Lee Suh Ryoung, chief secretary general of the Korea Blockchain Enterprise Promotion Association in Seoul said:
“We welcome the authorities’ attempt to build order. But the law in general remains stuck in the perspective of traditional finance in terms of regulating crypto.”
In April, South Korea experienced a significant decline in its monthly spot crypto trading volume, dropping to around $38 billion compared to its peak of nearly $200 billion two years ago, as per data from CCData. However, the country continues to be known for occasional virtual asset frenzies.
Countries worldwide are intensifying their efforts to regulate digital assets. Regions such as Hong Kong and Dubai are striving to attract crypto investments, while the European Union recently passed its groundbreaking Markets in Cryptoassets (MiCA) regulation. US agencies have also taken action following a series of incidents, including the bankruptcy of the FTX exchange.