Virtual Asset Legislation

South Korea has taken a decisive step into the future with its fresh legislation for the digital asset industry. Amid the wave of crypto-adoption sweeping across Asia, South Korea’s unique approach could reshape the workings of crypto firms within its borders. On July 3, Chainalysis delved into the intricacies of South Korea’s premier independent cryptocurrency legislation.

Introducing the Virtual Asset User Protection Act

The South Korean National Assembly marked a milestone on June 30 by passing the Virtual Asset User Protection Act, an unprecedented standalone legislation for digital assets. This landmark law sets out critical safeguards for crypto traders and users alike.

South Korean financial regulators have asserted their jurisdiction over Virtual Asset Service Providers (VASPs). This authoritative purview extends to entities that enable crypto asset acquisition, sale, exchange, transfer, and secure storage. These include brokers, platform operators, and custodians, as confirmed by Chainalysis.

In addition, the Bank of Korea retains the right to solicit data from these businesses under certain conditions. This measure ensures “monetary and financial stability and the smooth operation of payment and settlement systems.”

Establishing Customer Protections In South Korea

The law encompasses a host of user protections. Among these, it mandates that customers’ fiat currency be kept at a bank or licensed institution. This protective measure safeguards users from potential financial repercussions if a crypto exchange or firm collapses or closes down.

Furthermore, users’ crypto assets must be isolated, with a “stipulated percentage” required to be deposited into cold wallets.

South Korean crypto firms must carry insurance coverage for their reserves to complement these safety nets. That aims to protect customers against the “loss of virtual assets due to theft or technological failure.”

Prohibitions and Regulations In South Korea

The legislation explicitly forbids insider trading, conspiracy, wash trading, and other forms of market abuse. It also underscores that “VASPs are not permitted to trade in tokens issued by themselves or related entities,” as elucidated by Chainalysis.

Interestingly, these rules mirror those enacted by Hong Kong in the previous month. However, some industry heavyweights, such as Lee Suh Ryoung, the chief secretary general of the Korea Blockchain Enterprise Promotion Association, have expressed reservations.

Ryoung critiques the law as overly wedded to traditional finance perspectives in regulating crypto, which could potentially stifle the burgeoning industry.

Asia’s Regulatory Race: Embracing Crypto

Despite the stringent nature of these rules, Asian nations are vying to set up comprehensive regulatory frameworks for this novel asset class.

Hong Kong is forging ahead with its new legislation for VASPs and is on course to establish a regulatory structure for stablecoins. Meanwhile, Japan is fine-tuning its crypto regulations to assert itself as a regional digital asset hub.

Singapore has awarded payment licenses to several US companies, including fintech giants Circle and Ripple. The city-state’s central bank has also proposed new exchange rules to hold customer assets in a Statutory Trust.

Thailand’s SEC has stepped into the fray by issuing guidelines for crypto exchanges to publicize disclosure statements. However, in a seemingly retrograde step, it has forbidden platforms from providing returns to customers who lend crypto assets.

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