[NEWS] South Korean government approves new enforcement decree to protect cryptocurrency users

The FSC (Korea Financial Services Commission) announced that the Korean government passed a new legislative bill on the Enforcement Decree of the Act on the Protection of Cryptocurrency (Virtual Currency) Users at a cabinet meeting held on the 26th. It will come into effect on July 19th.

This law was enacted on July 18th last year. It defines crypto assets as a purpose and specifies what is excluded from the scope of crypto assets.

It requires VASPs (crypto asset service providers) to safely store and manage users' deposits and crypto assets. It also establishes penalties and sanctions for fraudulent acts such as the use of important non-public information and market price manipulation.

It defines crypto assets as electronic tokens with economic value that can be traded or transferred electronically. It states that game money, electronic money, electronic stocks, CBDC (central bank digital currency), etc. will be regulated by a separate law.

Electronic tokens that are deemed not to cause harm to users are excluded from the scope of crypto assets. Electronic bonds, mobile gift certificates, deposit tokens linked to CBDC, and NFTs are also excluded.

The FSC will set up an advisory committee on crypto assets to discuss policies and regulations related to crypto assets. The committee will be composed of experts from relevant ministries and the private sector, and will be chaired by the FSC Vice Chairman.

The new law requires VASPs to store and manage their customers' assets at banks and other trusted financial institutions. VASPs and financial institutions must store customer deposits separately from their own funds.

If a VASP goes bankrupt or its business registration is revoked, the financial institution that holds the deposits will return the deposits to customers after publishing the date and location of the return in a daily newspaper or on its website.

In addition, VASPs are now required to store at least 80% of their customers' crypto assets in cold wallets. In special cases where there is hacking, fraud, business closure, or other reasons for caution, the FSC may impose specific cold wallet ratios on certain VASPs.

To abolish the kimchi premium

VASPs will be required to monitor for suspicious or abnormal transactions. Particular emphasis will be placed on cases where the price or trading volume of crypto assets is fluctuating abnormally, or there are rumors or reports that may affect price trends.

In Korea, there is a tendency for transactions targeting kimchi premium to become active, but this will also be recognized as an abnormal transaction and will be prohibited. The kimchi premium has been viewed as a problem by regulatory authorities as it may bring fraud to the cryptocurrency market and violate Korea's foreign exchange law.

The law imposes severe criminal penalties and fines on those who engage in illegal cryptocurrency transactions. If the amount of illegally obtained profits is between 500 million won (approximately 57.8 million yen) and 5 billion won (approximately 578 million yen), a three-year prison sentence will be imposed.

In addition, if the amount exceeds 5 billion won, a minimum of five years in prison will be imposed, and a fine of twice the amount of the illegally obtained profit will be imposed. If the illegally obtained profits cannot be calculated, a maximum fine of 4 billion won (approximately 462 million yen) will be required to be paid.

VASPs can now suspend customer deposits and withdrawals if they are found to be using cryptocurrencies to generate criminal proceeds. VASPs themselves can now prevent tax evasion, underground banking, and money laundering of criminal proceeds.

Reference: Announcement
Image: Shutterstock

Related articles

South Korean regulator issues guidelines to determine whether NFTs qualify as crypto assets

South Korean won surpasses dollar to become world leader in cryptocurrency trading, while Japanese yen falls far behind