South Korea Crypto Regulations
The Financial Services Commission (FSC) of South Korea has outlined a detailed proposal aimed at safeguarding virtual asset users and instituting a robust framework for cryptocurrency transactions.
The newly proposed legislation spans various aspects.
This includes the definition of virtual assets covered by the law, guidelines for secure management of user deposits by service providers, and legal bases for sanctions against unfair trading practices.
New Stringent Regulation for Virtual Assets
In a press release on 11 December, the FSC unveiled its initiative to introduce fresh regulations through the Act on the Protection of Virtual Asset Users.
The proposal delineates specific tokens excluded from the Act, such as non-fungible tokens (NFTs), deposit tokens linked to Central Bank Digital Currencies (CBDCs), electronic bonds, electronic stocks, and mobile gift certificates.
Concerning user deposit custody, the proposal mandates virtual asset service providers (VASPs) to segregate customer funds from their own and entrust or deposit them with a reputable financial institution.
Banks are identified as the designated custodian institutions in the Enforcement Decree.
According to the Act, VASPs must store a minimum of 80% of their customers’ virtual assets in cold wallets.
This requirement exceeds the initial 70% threshold for obtaining an Information Security Management System (ISMS) certificate under the Act on Reporting and Use of Certain Financial Transaction Information.
The proposed Act also introduces provisions enabling VASPs to meet liabilities in the event of hacking or computer failures.
If enacted, the Act will compel VASPs to acquire liability insurance with a compensation limit of at least 5% of customers’ crypto assets stored in hot wallets.
Furthermore, the Act explicitly prohibits VASPs from arbitrarily blocking users’ deposits and withdrawals without justifiable grounds.
Expected Implementation Date
The proposed legislation is open to public commentary from 11 December 2023 to 22 January 2024, with an anticipated effective date of 19 July 2024.