South Korea Enacts New Cryptocurrency Regulations to Protect Investors
South Korea’s first major set of cryptocurrency regulations is now live, safeguarding crypto investors nationwide. These new rules impose strict requirements on Virtual Asset Service Providers (VASPs) to increase investor protection.
Dubbed the Protection of Virtual Asset Users (PVAU), the regulations mandate that VASPs store at least 80% of users’ digital assets in cold storage. This measure aims to mitigate risks of cyber attacks.
The Financial Services Commission (FSC) designates credible financial institutions to manage fiat deposits made to VASPs. VASPs must also separate customer funds from their own and invest these funds in “risk-free” assets.
These safeguards are designed to ensure that in the event of a cryptocurrency exchange bankruptcy, financial institutions can directly repay customer funds. This regulation follows the collapses of Terra-Luna and FTX, which severely impacted South Korean investors.
Additionally, the FSC now requires VASPs to obtain insurance or maintain a reserve fund to cover potential damages from hacks or liquidity crises.
VASPs must also restrict user deposits and withdrawals under certain conditions, enhancing control over irregular activities. This is part of a broader effort to ensure the stability of the cryptocurrency market.
The Financial Supervisory Service (FSS), the executive arm of the FSC, has implemented a real-time monitoring system. This system, established in collaboration with crypto exchanges, aims to detect and report abnormal transactions.
This system is expected to cover 99.9% of South Korea’s crypto trading volume. Any detected irregularities must be reported to the FSS through a dedicated communication line.
As of early July, 29 crypto exchanges, including Upbit, Bithumb, Coinone, Korbit, and Gopax, registered with the FSS to comply with these new regulations.
This regulatory enforcement comes as South Korea’s Ministry of Economy and Finance considers delaying a 20% tax on crypto gains, initially set for early next year, possibly until 2028.
