South Korean lawmakers have approved the initial review of a comprehensive crypto regulation bill, which contains strict sentencing guidelines for violators. The legislation aims to grant the Financial Services Commission the power to oversee digital asset-related activities in the country, including cryptocurrency transactions.
New crypto regulation to impose strict requirements for exchanges
The bill contains a wide range of provisions concerning the sale, storage, and trade of cryptocurrencies, placing a strong emphasis on consumer protection and compliance reporting. Hwang Suk-jin, a member of the ruling People Power Party’s Digital Asset Special Committee, shared with Forkast that both ruling and opposition parties have reached a consensus on the matter, and the bill could become law by the end of the year.
Upon enactment, the legislation would impose stringent measures on cryptocurrency exchanges and related service providers. These entities would be required to separate their internal holdings from customer assets, secure insurance policies, and maintain reserve funds to cover non-market-related losses in South Korea. Central Bank digital currencies and assets directly linked to the Bank of Korea are exempted from these regulations. In addition, businesses and individuals involved in the country’s cryptocurrency sector would be obligated to self-report any irregularities to ensure compliance.
Harsh penalties for non-compliance
The proposed bill features rigorous punishment guidelines for those violating its provisions. As per Forkast, convictions for offenses causing losses below approximately $3.75 million, such as inadequate investor disclosures, price manipulation, or misleading promotion of crypto assets, may lead to fines worth three to five times the total losses and up to one-year imprisonment. Offenses resulting in losses exceeding $3.75 million could carry prison sentences ranging from five years to life. For comparison, the CEO of Titanium Blockchain, who was found guilty in the U.S. of swindling customers of $21 million, received a sentence of four years and three months.
The introduction of the bill in June 2022 followed the collapse of the Terra ecosystem, which led to significant downturns in the cryptocurrency market. The South Korean government subsequently indicted Terraform Labs co-founder Shin Hyun-seong and nine other individuals involved.