South Korea’s crypto framework, the Virtual Assets User Protection Act, came into force on July 19. This regulation offers guidance to the crypto exchanges operating in the country. Many have stated these laws, formulated by the country’s Financial Services Committee (FSC), are on the stricter side.
A press release issued by the FSC read, “The Financial Services Commission announced that the Act on the Protection of Virtual Asset Users, which intends to establish a sound order in the virtual asset market and ensure protection for users, will take effect from July 19.”
The act seeks to aid in ”protecting users’ deposits and virtual assets,” “regulating unfair trading activities, such as price manipulation,” and “authorizing the financial regulators to supervise, inspect, and sanction VASPs.” Moreover, it will enforce criminal prosecution on those “engaging in unfair trading activities.”
VASPs, like exchanges, will have to rely on custodians or “banks” to safely store user assets and bifurcate them from enterprise-owned funds. They must also store enough liquidity to ensure market safety against volatility and honor user withdrawals. Taking hacks, exploits, and worst-case scenarios, the framework requires VASPs to stay insured so users will possess the means to claim their funds during dire situations.
Furthermore, VASPs must integrate an anti-money laundering surveillance system and keep their information channels open always to relay suspicious behavior to the Financial Supervisory Service (FSS).
“The FSS is authorized to inspect VASPs for compliance with their duties to protect users, and the FSC is authorized to bring sanctions against rule-breakers by making corrective orders, issuing suspension of business operation, imposing administrative fines, and so on,” the press release read.
VASPs will also have to refrain from practices that lead to market manipulation, putting user investments at risk. The law also gives South Korean regulators the privilege to delist assets that violate securities laws and AML requirements. Some exchanges have voiced their concern about the hassles brought by asset blacklisting.
