Crypto investors in South Korea will have more peace of mind starting next month, thanks to new rules that protect users’ balances in case of a crypto exchange bankruptcy.
In an effort to increase trust in the nation’s digital asset market, the government approved an enforcement decree, which the Financial Services Commission (FSC) announced on Tuesday.
Beyond merely providing user balance safety nets in the event of exchange failures, the recently approved proposals for virtual assets offer more. They are a part of a larger initiative to control South Korea’s cryptocurrency market. These regulations, which go into effect on July 19, will define and classify virtual assets precisely. Additionally, they will set up procedures to deal with unethical business practices.
[Press Release] The Financial Services Commission announced that the government approved a new legislative bill on the Enforcement Decree of the Act on the Protection of Virtual Asset Users at a cabinet meeting held on June 25. https://t.co/gwFozngToP
— Financial Services Commission – FSC Korea (@FSC_Korea) June 25, 2024
New South Korea Rules Shield Crypto User Deposits
Virtual Asset Service Providers, or VASPs, will have to keep client deposits at respectable financial institutions apart from their own company funds as per the decree. By taking this action, the risks of exchange insolvency are reduced, and user confidence in the Korean cryptocurrency market is increased.
In the event of insolvency or closure of a VASP, the custodian bank will take over. It must immediately reimburse user deposits to clients after making the procedure known to the general public through websites and newspapers.
Focus on Offline Storage of User Assets
It is now mandatory for VASPs to keep 80% or more of the digital assets belonging to their users in cold storage. High-security offline systems that reduce the possibility of loss or hacking are referred to as cold storage.
In addition, if there are worries about fraud, security lapses, or possible business closure, the authorities may require an even more stringent cold storage ratio for a particular VASP.
New Korean Law Means Tough Penalties for Fraud
Additionally, the decree forbids manipulative actions in the cryptocurrency market and imposes harsh penalties on those found to be deceitful. These days, abusing the system to unfairly profit can result in criminal charges and large fines. Offenders risk a minimum sentence of one year in prison and a maximum fine of five times their illicit profits.
The 10-year prison term for South Korean cryptocurrency scammer Wi, who defrauded hundreds of investors out of $82.6 million, was upheld by a court this month. Wi’s scheme involved luring victims with the promise of “guaranteed” returns, a tactic that ultimately landed him in hot water.
Additionally, under the new regulations, VASPs will have the power to limit user deposits and withdrawals in certain situations.
Millions Seized in Recent Crackdowns
Although the government of South Korea has not yet formally imposed taxes on cryptocurrency profits, confusion has been brought about by their back-and-forth on the matter. But tax officials are still on the lookout because they believe a lot of people are using cryptocurrencies to hide their income.
A province has already this month taken about $138,000 worth of cryptocurrency from 31 people who are allegedly tax evaders. Hwaseong tax officials seized cryptocurrency holdings worth more than $768,500 in March.