Law on the protection of crypto investors has come into force in Korea

What’s new? In South Korea, the first crypto regulation law has come into force. The regulatory framework, drafted and enacted on a fast-track basis amid the collapse of the Terra blockchain ecosystem and FTX crypto exchange in 2022, is focused on ensuring the safety of cryptocurrency investors.

Material by The Korea Herald

What else is known? The Virtual Asset User Protection Act aims to combat fraud, market manipulation, and insider trading by setting stricter requirements for exchanges.

Service providers are required to keep at least 80% of users’ crypto deposits in cold storage separate from their own funds, as well as transfer custody of users’ cash to a licensed local bank and maintain cryptocurrency reserves equal in size and type to customer deposits.

In addition, crypto services in Korea are now required to take out insurance or establish a reserve fund to prepare for possible hacker attacks or liquidity crises.

The law also requires exchanges to set up real-time monitoring systems to report suspicious trading activity. At the same time as the law came into effect, the Financial Services Commission (FSC), the industry’s primary regulator, launched its own monitoring system to detect fraud in the crypto market.

Companies that do not comply with the new requirements may face penalties or suspension of operation. For fraud with damages above 5 billion Korean won, one faces life imprisonment.

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The new law regulates the distribution, but not the release, of virtual assets. At the moment, lawmakers are already discussing topics such as the regulation of issuers, as well as the revision of the ban on institutional investment in cryptocurrencies and stablecoins.

Korea’s crypto market is one of the largest in the world. According to Kaiko analysts, in the first quarter, the Korean won was the most commonly used fiat currency for cryptocurrency trading.

At the same time, in June, the volume of spot trading on the largest Korean exchange Upbit fell by 45% to $30,4 billion, which was the largest drop among the leading trading crypto platforms. The decrease in the indicator is probably due to the entry into force of the law on the protection of crypto investors.