South Korea’s Financial Services Commission (FSC) expanded the list of regulatory requirements for local cryptocurrency companies and digital asset service providers by introducing the Virtual Asset User Protection Act.
South Korea’s financial market regulator decided to expand the requirements for local crypto market participants to ensure the protection of digital asset users in the region.
The Financial Services Commission issued the regulation on the supervision of the cryptocurrency market, which is an addition to the Virtual Asset User Protection Act, scheduled to come into effect on July 19, 2024. According to the document:
- Virtual asset service providers are required to keep user funds separate from the company’s own assets.
- Crypto companies must store at least 80% of user assets in cold wallets.
- A company that uses deposited assets of its clients must pay interest to the deposit holders for using their funds. The interest will be proportional to operating profit.
- Digital asset users should be able to withdraw their deposits at any time, restrictions may only apply to court orders and tax rulings.
- Providing services related to digital assets, companies must offer users insurance liabilities in case of hacker attacks.
- The insurance fund for users of crypto companies must correspond to the level of customer investments.
- Crypto exchanges commit to monitoring all transactions to detect insider trading. If any abnormal activity is discovered, representatives of the trading platform must inform regulators. In case of inaction, they’ll be obliged to pay a fine.
The resolution notes that the regulatory norms mentioned above won’t apply to transactions with non-fungible tokens (NFT) and central bank digital currencies (CBDC).
The Bank of Korea (BOK) is actively working on a digital won pilot project, planning to conduct a large-scale test next year with the participation of over 100,000 citizens.
