South Korea Boosts Crypto User Safety with New Consumer Protection Rules

• South Korea Introduces Protection Rules for Virtual Asset Services Users
• Details of the Proposed Regulations by Financial Services Commission (FSC)
• Virtual Asset User Protection Act
• Increasing Regulations in the Crypto Sector
• Provisions of the Incoming Rules
• Exclusions from the Act

South Korea Introduces Protection Rules for Virtual Asset Services Users

South Korea has put forward new regulations aimed at safeguarding users of virtual asset services providers (VASPs). This recent action presents a continuation of the country's increased scrutiny of the crypto sector in recent times. Notably, the proposed rules do not encompass non-fungible tokens (NFTs).

Details of the Proposed Regulations by Financial Services Commission (FSC)

The South Korean Financial Services Commission (FSC) has presented these protective regulations for VASP clients, as reported on Monday. Scheduled to come into effect on July 19, 2024, these rules fall under the Virtual Asset User Protection Act that was passed earlier this year. There is a provision for public comment on these regulations until January 22.

Virtual Asset User Protection Act

This Act establishes the definition of digital assets and provides a legal basis for implementing sanctions, including criminal penalties and fines, to penalize undeserved trading activities involving virtual assets. Additionally, it obligates VASPs, also known as exchanges, to supervise irregular transactions and alert the FSC when necessary.

Increasing Regulations in the Crypto Sector

South Korea has been intensifying its regulatory activities in the crypto sector in recent months. In July, the FSC introduced draft regulations that will mandate companies to reveal if they possess or hold crypto starting from next year.

Provisions of the Incoming Rules

Under the upcoming regulations, VASPs will be required to reimburse customers for utilizing their deposits. In cases where exchanges store their assets in banks, these financial institutions are permitted to invest the deposits in secure assets, such as government bonds.

The proposed regulations also necessitate exchanges to store 80% or more of customers' deposits in cold wallets. These are crypto wallets that are not constantly online, thus offering reduced susceptibility to cyber attacks.

Exclusions from the Act

The Act does not extend to non-fungible tokens (NFTs) and central bank digital currencies (CBDCs).

Edited by Jonathan Stoker