The Financial Services Commission (FSC) of South Korea has announced that the Act on the Protection of Virtual Asset Users took effect on July 19. In March 2021, the Act on Reporting and Using Specified Financial Transaction Information was revised.
This revision required virtual asset service providers (VASPs) to register with the financial authority. Various anti-money laundering measures, such as the travel rule, were also introduced.
Related: South Korea crypto exchanges scramble to meet deadline for VAUPA implementation
However, these measures alone were not enough to tackle unfair trading practices like price manipulation or to guarantee the safety of users’ assets.
Seeing the need for better protection, the Virtual Asset User Protection Act was passed on July 18th last year. This act includes key points from 19 legislative bills that were pending in the National Assembly.
Over the past year, additional regulations were developed, and VASPs were given time to prepare for the new law’s implementation starting July 19, 2024.
The Virtual Asset User Protection Act covers several important areas. It protects users’ deposits and crypto assets, regulates unfair trading activities, and gives financial regulators the power to supervise, inspect, and sanction VASPs.
Related: South Korea introduces continuous monitoring for crypto transactions
First, customers’ deposits must be safely kept at banks, and VASPs are required to pay interest on these deposits. VASPs must keep users’ virtual assets separate from their own and have custody of the exact types and amounts of assets that customers hold.
To reduce risks like hacking, VASPs must have insurance or set aside a reserve fund. To fight unfair trading, VASPs need to maintain a system to monitor suspicious transactions and report any unusual activities to the Financial Supervisory Service (FSS) immediately.
If found guilty of unfair trading after investigations, offenders could face criminal charges or fines. With this law, financial authorities have more power.
Related: Exchanges in South Korea ready to comply with new regulations
The FSS can inspect VASPs to ensure they follow user protection rules, and the FSC can impose penalties. This includes suspensions and fines, on those who break the rules.
The FSC expects that the new law will create a safer environment for users. By imposing strict penalties, they reportedly want to deter such activities and maintain order in the market.
The financial authorities plan to work closely with investigative bodies and continually seek improvements to ensure the law is effective. Users should know that while the new regulations provide protection, they do not guarantee the safety of their cryptos.
Trading through unregistered service providers or engaging in over-the-counter (OTC) and peer-to-peer (P2P) transactions carries additional risks due to the lack of proper market surveillance, says the FSC.
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