New Proposed Rules to Safeguard Crypto Users in South Korea

The Financial Services Commission (FSC) of South Korea has recently announced the proposal of new rules aimed at safeguarding the customers of virtual asset services providers (VASPs). These rules, a part of the Virtual Asset User Protection Act enacted earlier this year, are scheduled to come into effect on July 19, 2024, following a public comment period until January 22. This initiative by the FSC is part of a comprehensive strategy to enhance regulation within the crypto sector, particularly focusing on customer protection and transparency.

According to the new rules, VASPs will be required to compensate customers for utilizing their deposits, thereby providing increased financial security to users. Additionally, exchanges must store a minimum of 80% of customer deposits in cold wallets to reduce vulnerability to cyberattacks. Furthermore, the rules dictate that when VASPs store their assets in banks, the banks are authorised to invest the deposits in secure assets such as government bonds.

It is important to note, however, that the Act does not encompass non-fungible tokens (NFTs) and central bank digital currencies (CBDCs), two areas that have witnessed notable growth and innovation within the broader digital asset space.

The proposal is in line with the FSC’s broader mission to address unfair trading activities involving virtual assets, as it provides a legal framework for penalties aimed at deterring such activities. VASPs are also entrusted with the responsibility of monitoring abnormal transactions and informing the FSC when necessary.

This significant move by the South Korean financial regulator represents a crucial step towards creating a more secure and transparent environment for crypto users in the country. It builds upon earlier announcements in July, where the FSC outlined draft rules mandating companies to disclose their ownership or holdings of crypto assets beginning in the coming year.

The developments in South Korea are indicative of a global trend towards heightened oversight and regulation within the digital asset space. With the increasing adoption of cryptocurrencies and the expansion of the blockchain industry, policymakers worldwide are acknowledging the necessity of comprehensive regulatory frameworks that prioritise consumer protection and financial stability.

Looking ahead, it is clear that the evolution of digital assets will continue to shape the global financial landscape. Consequently, it is imperative for regulators and market participants to collaborate in establishing an environment that encourages innovation while upholding the highest standards of safety and responsibility for all stakeholders.

In conclusion, the proposed rules put forth by the FSC underscore the significance of establishing a robust regulatory framework that safeguards the interests of crypto users. Furthermore, these rules exemplify a broader commitment to enhancing transparency and accountability within the digital asset industry, serving as a foundation for its continued growth and evolution.