South Korea introduces fresh regulations to protect cryptocurrency users from exchange collapses
Commencing in the coming month, cryptocurrency investors in South Korea can anticipate enhanced safeguards as a result of the government’s approval of new regulations designed to bolster user security in the event of a crypto exchange’s bankruptcy.
The Financial Services Commission (FSC) revealed on Tuesday that the enforcement decree, set to become effective on July 19, is part of a broader initiative to regulate the nation’s digital asset market.
Under the decree, Virtual Asset Service Providers (VASPs) are obligated to separate customer deposits from their operational funds, ensuring that they are held at reputable financial institutions.
Through this measure, South Korea aims to diminish the risks associated with potential exchange insolvencies, thereby fostering user trust in the Korean cryptocurrency market.
Additional protective measures include the requirement for VASPs to store a minimum of 80% of users’ digital assets in cold storage—offline systems renowned for their enhanced security against hacks and losses.
Depending on a VASP’s security outlook, regulators may impose an even higher cold storage requirement to mitigate the risks of fraudulent activities or operational closure.
In addition to bolstering user safety, the decree introduces stringent penalties for manipulative and fraudulent practices within the crypto market.
Perpetrators involved in exploiting the system may face a minimum of one year in prison or fines totaling five times the illegal profits acquired from their activities.
South Korea is also contemplating hundreds of crypto listings under the new law, as reported recently.
The decree also encompasses provisions for VASPs to impose restrictions on user deposits and withdrawals under specific conditions, thereby providing further control over irregular activities.
Lately, South Korea has been intensifying its legal actions against fraudsters who deceive crypto investors into surrendering their funds.
On May 21, South Korean authorities apprehended 19 members of a fraudulent social media chat group that had conned over 300 investors out of nearly $19 million.
Although South Korea has not yet implemented official taxation on crypto profits, the ongoing indecision surrounding the introduction of such levies has created a sense of uncertainty.
Nevertheless, tax authorities are actively monitoring the situation due to concerns that cryptocurrencies are being used to evade taxes.
On Feb. 22, crypto.news reported that a South Korean province successfully recovered $4.6 million worth of crypto in one year from 2,300 suspected tax evaders.
For more information, read about a South Korean bank staff member who embezzled $7.5 million to invest in crypto.
