July 5, 2023
By Sharan Kaur Phillora
South Korea’s National Assembly made a significant move in the realm of digital finance by passing the Virtual Asset User Protection Act, marking the country’s inaugural stride towards the establishment of a comprehensive legal infrastructure for cryptocurrencies. The Act is expected to be effective by next year.
Here’s what we know:
The newly minted law, assembled from 19 legislative proposals, offers wide-ranging provisions for the regulation of digital asset service providers. These businesses are now required to segregate customers’ assets, maintain comprehensive transaction records, and secure insurance coverage.
They’re obligated to keep part of their reserves in offline cold wallets, a measure designed to mitigate risks associated with potential cyber-attacks or system failures.
The Act also sets out penalties for violations, such as engaging in deceptive advertising of crypto assets, manipulating prices, or failing to disclose key investor information.
Convictions carry hefty punishments, including a minimum of one year’s imprisonment or a fine equivalent to three to five times the earnings generated from these violations.
The law provides a comprehensive definition of “virtual assets,” referring to them as digital representations of economic value that can be electronically traded or transferred. However, it excludes the Central Bank Digital Currency (CBDC) issued by the Bank of Korea from its purview.
The Act also grants the Bank of Korea the authority to solicit data from cryptocurrency service providers, a move to better understand and monitor the potential impact of cryptocurrency markets on financial and monetary stability.
The legislation comes in the aftermath of South Korea’s unfortunate brush with Terra-Luna, a cryptocurrency and stablecoin venture that resulted in substantial losses to investors, amounting to a shocking US$40 billion.
This incident, among other factors, has sparked a drive to create an effective legal framework for cryptocurrencies within the country, with a primary focus on safeguarding investors.
Despite the recent decline in its global cryptocurrency adoption rank, South Korea remains a significant player in the crypto landscape. Endorsing the move, Hwang Suk-jin, a member of the People Power Party’s Digital Asset Special Committee, expressed that the legislation would ensure better legal protection for virtual asset users and foster a more secure and stable market environment for cryptocurrencies.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.