The South Korean financial regulators have revealed plans to enact new crypto rules to address unlawful trading activities.
With the growing popularity of crypto assets, the South Korean Financial Service Commission(FSC) is set to enact the Virtual Asset User Protection Act (VAUPA) in the coming weeks. The new legislation protects South Korean crypto enthusiasts from unfair trading practices.
South Korea Enact New Crypto Rules
Also, VAUPA seeks to prevent the recurrence of the FTX saga, ranked as the most significant financial crime in history. In a July 18 press release, the financial regulators outlined that the enactment of VAUPA aims at strengthening the customers’ protection measures.
The FSC projects that the new rule will restore sanity in the digital sector by punishing the wrongdoers. The new provision tasks local and foreign crypto exchanges responsible for monitoring every crypto transaction.
The exchange must identify and report any suspicious activity in the crypto sector. Under the new legislation, the crypto exchange should report any unusual price movement, insider information, or fraudulent transactions to the local authority to the local authority.
Significance of Virtual Asset User Protection Act in South Korea
Additionally, virtual asset service providers (VASP) are required to ensure market integrity while facilitating the buying and selling of crypto assets. With the changes in the macroeconomic factors, some crypto exchanges are at the edge of liquidation.
To prevent the crypto exchange from vanishing with customers’ funds, the VAUPA legislation outlines preventive measures to address financial losses. Firstly, the crypto exchanges are required to deposit the user funds in a registered financial institution.
The exchanges will be subject to interest on deposit at 1% to 1.5%. Also, in the event of a security breach, the local exchanges are advised to store customers’ assets in cold wallets that are safe and secure.
The VAUPA tasks the crypto exchange to provide insurance covers to customers in case of potential losses from hacks or system failures. In the press release, the FSC referred to some of the principles of the South Korean Act of policing digital assets as electronic tokens.
Under existing law, digital assets, except non-fungible tokens (NFTs) and central bank digital assets (CBDC), hold economic value that can be traded online.
Financial Regulator Outline the Importance of Strengthening Consumer Protection
As South Korean investors show interest in crypto assets, the regulators have stepped up their game to supervise the digital sector. In 2020, the regulators reviewed an article on the South Korea Act for reporting and using specific financial transaction information.
The amendment aimed at ensuring the VASPs comply with the existing regulations. To comply with the amended South Korean Act, the VASPs were required to have an authorized bank account and secure the information security management system certificate from the local authority.
The VASPs were required to submit company information, including the bank account and other confidential details, to the FIU. With the new legislation, some crypto firms, such as OKX, were forced to flee the South Korean crypto market to comply.
Before being authorized to operate as VASPs in South Korea, the crypto firms were required to comply with international standards for money laundering and know their customers (KYC).
Attractiveness of South Korean Crypto Market
Since then, the South Korean crypto industry has attracted international investors and stimulated a vibrant digital economy. However, with the changes in the crypto ecosystem, South Korean regulators regularly revise the existing regulation on digital assets to improve the attractiveness of the digital sector.
In June, the South Korean consortium of crypto exchanges, the Digital Asset Exchange Alliance (DAXA), launched new procedures to address the mass delisting of digital assets.
With the new guidelines, the DAXA seeks to address market manipulation and strengthen the relationship between crypto exchanges and South Korean regulators.
The new procedure outlines the measures for trading certain crypto assets. The DAXA confirmed that compliance of over 1333 crypto assets was reviewed in the last six months. The new guidelines aim to reduce the delisting of crypto assets and restore integrity in the digital space.
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