South Korea’s Financial Supervisory Service (FSS) is gearing up to implement robust regulations for virtual assets, to heighten investor protection.
The FSS has issued a legislative notice outlining key provisions slated to take effect in July 2024.
South Korean Crypto Investors
According to a recent local report, investors engaging in crypto transactions will earn interest on deposits made through exchanges.
Furthermore, non-fungible tokens (NFT) and deposit tokens linked to Central Bank Digital Currencies (CBDC) fall outside the legal scope of virtual assets.
Meanwhile, the FSS has specified user deposit management methods for virtual asset operators. Operators must segregate user deposits from proprietary assets, securely placing them in banks.
Additionally, they must distribute earnings as fees or interest to users when profits arise.
However, crypto exchanges must ensure that the banks they use pay interest on user deposits made through the exchange.
The Legislation Is To Protect South Korean Crypto Investors
This is to ensure investors benefit financially. This move impacts major players like Upbit, holding a significant 90% market share in domestic virtual asset trading. Upbit’s user deposits reached 29 trillion won as of September.
Read more: How Does Regulation Impact Crypto Marketing? A Complete Guide
Moreover, the legislation enforces a minimum reserve requirement for virtual asset exchanges. A reserve of at least 30 billion won must be maintained for preparation purposes.
Meanwhile, this reserve must consist of 80% in coins and mandates the mandatory storage of cold wallets. This provides enhanced security by isolating them from the internet.
However, to fortify resilience against hacking and technical mishaps, virtual asset operators must secure insurance coverage or establish reserve funds.
Insider trading regulations, similar to those in traditional stock markets, have been introduced. This ensures transparency and accountability in the virtual asset space.
As part of these new measures, virtual asset exchanges are obliged to monitor transactions vigilantly, promptly reporting any suspicions of unfair trading practices to financial authorities.
However, the regulations also prohibit unexpected disruptions to user deposits and withdrawals.
Read more: Crypto Regulation: What Are the Benefits and Drawbacks?
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