New regulations by South Korea’s financial watchdog to protect user assets on crypto exchanges took effect on July 19.
The much-anticipated regulations from South Korea’s Financial Services Commission (FSC), designed to safeguard users buying and storing crypto assets with virtual asset service providers (VASPs), were enacted on July 19.
Key Measures in the “Virtual Asset User Protection Act”
The “Virtual Asset User Protection Act” requires VASPs to implement several protective measures:
- Insurance Against Cyber Attacks: VASPs must insure against hacking and malicious attacks on user assets.
- Asset Segregation: Customer assets must be kept separate from the exchange’s assets.
- Secure Banking of Customer Deposits: Customer deposits must be safely kept in banks.
- Anti-Money Laundering (AML) Compliance: VASPs must maintain due diligence to prevent money laundering and report any suspicious transactions.
The FSC stated, “VASPs should maintain a surveillance system for suspicious transactions at all times and immediately report suspicious trading activities to the Financial Supervisory Service (FSS).”
Non-compliance with these regulations could result in criminal penalties or fines after investigations by financial and investigative authorities.
Also Read: South Korean Convenience Store Launches Bitcoin Meal Boxes
Concerns Among South Korean Crypto Exchanges
South Korean crypto exchanges have expressed concerns that the new rules could lead to widespread delisting of tokens. However, a group of 20 exchanges, the Digital Asset Exchange Alliance (DAXA), will review 1,333 cryptocurrencies over the next six months. According to DAXA, “the possibility of mass delisting occurring all at once is unlikely.”
Proposed Delay in Crypto Tax Implementation
In a related development, South Korea’s ruling party, the People’s Power Party, officially proposed delaying the implementation of a tax on crypto trading profits. On July 12, the party submitted a proposal highlighting the deteriorating sentiment toward crypto assets and arguing that rapidly imposing taxes on virtual assets is “not advisable at this time.”
