South Korea approves Virtual Asset User Protection Law 70 of exchanges to use cold wallets insider trading to be punishable
To protect cryptocurrency users, the South Korean Cabinet approved the enforcement regulations of the Virtual Asset User Protection Law on June 25. The regulations will take effect on July 19, aiming to safeguard cryptocurrency users and establish a healthy order in the virtual asset market.
The regulations define virtual assets and list what does not belong to virtual assets. It requires virtual asset service providers (VASPs) to securely store and manage users’ fiat deposits and virtual assets. Additionally, it introduces criminal penalties and fines for unfair trading practices involving virtual assets, such as insider trading and price manipulation.
The regulations also exclude electronic bonds and gift cards under the Electronic Financial Transactions Act, as well as deposit tokens and non-fungible tokens (NFTs) from virtual assets definition, as they are considered new digital assets with lower risk to users. Furthermore, the Financial Services Commission (FSC) will establish a virtual asset committee to provide policy and system recommendations for the virtual asset market and VASPs. The committee will be chaired by the FSC vice chairman and include experts from relevant government departments and private enterprises.
VASPs must deposit user funds in trusted institutions, especially banks, and separate these funds from the institution’s assets. The funds must be invested in secure assets such as government and municipal bonds, with the returns paid to VASPs and then transferred to users as deposit usage fees.
In the event of VASP bankruptcy or deregistration, designated banks must announce the details of user deposits through newspapers and their websites. The banks must verify and directly refund the deposits to users to ensure the safety of user funds in adverse situations.
The regulations require VASPs to store at least 70% of user virtual assets in cold storage to reduce the risk of hacking. The FSC may set different storage ratios in the event of major threats such as hacking or business closure and notify VASPs accordingly.
The law authorizes VASPs to continuously monitor abnormal transactions and defines these transactions. Abnormal transactions include abnormal fluctuations in virtual asset prices or trading volumes, as well as rumors or reports that may affect prices. The financial supervisory service and VASPs will establish self-regulatory guidelines to monitor these transactions, and any suspected unfair transactions must be reported to the financial authorities in a timely manner.
The regulations also specify when information becomes “public.” Information published in two or more comprehensive or professional economic newspapers is considered public at 6 a.m. the following day; information provided by broadcasting companies or news agencies becomes public six hours after publication. Similarly, information on VASP websites becomes public six hours after publication, and information on issuer websites becomes public 24 hours after publication, provided that the information is accessible to the public and continuously published for at least six months.
The law imposes criminal penalties and fines for unfair trading activities. The severity of penalties, including imprisonment and fines, will be related to the undue profits from such activities, with the highest penalty reaching life imprisonment. The regulations allow VASPs to block user deposits and withdrawals in legitimate cases such as system failures, maintenance, or hacking incidents. It also includes administrative orders from relevant authorities and funds related to illegal activities under the Criminal Proceeds Act.
The regulations will be officially announced early next month and implemented on July 19 along with the Virtual Asset User Protection Law. The FSC will also develop new regulatory guidelines expected to be approved on July 10 for supervising the virtual asset industry and market operations.
The FSC emphasizes that the implementation of these laws and regulations will create a fundamental safety net for user protection and promote a healthy market order. They assure thorough preparation to ensure smooth implementation and strengthen user protection in the virtual asset market.
