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South Korea Sets New Standards in Crypto Regulation with Virtual Asset User Protection Act

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  • South Korea’s Financial Services Commission (FSC) has released regulations under the Virtual Asset User Protection Act, effective from July 19, 2024.
  • These regulations focus on safeguarding user deposits, enhancing market integrity, and ensuring stringent security measures in the virtual asset industry.

Enhancing Virtual Asset Security in South Korea

In a landmark development for the cryptocurrency industry, South Korea’s Financial Services Commission (FSC) has unveiled comprehensive regulations as part of the Virtual Asset User Protection Act. This strategic move is set to revolutionize the virtual asset landscape in South Korea, establishing a more secure and trustworthy environment for users.

Key Features of the New Regulations

The newly announced regulations encompass the Enforcement Decree of the Virtual Asset User Protection Act and the Virtual Asset Industry Supervision Regulations. These measures have been meticulously crafted to bolster user protection and bring stability to the virtual asset market. One of the significant changes introduced by the FSC includes broadening the spectrum of entities exempted from the Act, such as deposit tokens linked to Central Bank Digital Currencies (CBDCs) and non-fungible tokens (NFTs). This adjustment reflects the FSC’s effort to adapt to the evolving digital asset landscape.

A critical aspect of the regulations is the mandatory separation of user deposits from proprietary assets of virtual asset service providers. Banks have been designated as trusted management institutions for deposit management, reinforcing public trust and financial stability in the industry. The regulations specify detailed procedures for managing and utilizing user deposits, emphasizing the paramount importance of protecting user assets.

Moreover, to enhance security measures, the FSC mandates that over 80% of users’ virtual assets be stored in cold wallets, a significant increase from the existing requirement of 70%. This change aims to safeguard user assets from potential risks such as cyber threats, hacking, and cryptocurrency scams.

Proactive Measures and Market Integrity

The regulations also address potential crises in the virtual asset space. Virtual asset business operators are now required to have insurance or mutual aid arrangements or accumulate reserves to cover incidents like hacking or computer system failures. This proactive strategy is intended to ensure accountability and bolster the virtual asset ecosystem’s resilience.

To maintain market integrity, the regulations stipulate specific guidelines for disclosing important undisclosed information, tailored to the unique characteristics of the virtual asset market. Furthermore, the regulations restrict virtual asset business operators from arbitrarily blocking deposits and withdrawals, unless justified by defined exceptions. This rule underscores the commitment to user empowerment and protection against unwarranted disruptions.

In addition, the FSC imposes obligations on virtual asset exchanges to diligently monitor and report abnormal transactions, demonstrating a firm commitment to market integrity and user protection.

As South Korea takes a significant step forward with the implementation of the Virtual Asset User Protection Act, the nation positions itself as a leader in establishing rigorous regulatory frameworks in the virtual asset industry. These comprehensive regulations reflect a balanced approach, aiming to foster a secure, stable, and transparent virtual asset market while promoting innovation and growth in the sector.

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Godfrey Benjamin
Godfrey Benjamin
Godfrey Benjamin is an experienced crypto journalist whose primary goal is to educate everyone about the prospects of Web 3.0. His love for crypto was sparked during his time as a former banker when he recognized the clear advantages of decentralized money over traditional payments. Business Email: info@ethnews.com Phone: +49 160 92211628