South Korea’s Strict Laws on Crypto Exchanges Come into Force

South Korea’s new regulations for crypto exchanges, aimed at protecting users and preventing money laundering, come into force, impacting the operations of VASPs.

Points

• New regulations from South Korea’s Financial Services Commission （FSC） come into force.
• VASPs required to take out insurance against hacking and separate customer assets from exchange assets.
• Due diligence and reporting of suspicious transactions mandated.
• Concerns among crypto exchanges about potential mass delisting of tokens.
• Proposal to delay implementation of tax on crypto trading profits.

The much-talked-about new regulations from South Korea’s financial security regulator, designed to protect users buying and storing crypto assets with virtual asset service providers （VASPs）, came into force on July 19. Titled the “Virtual Asset User Protection Act,” VASPs must take several steps to ensure the protection of users’ crypto, according to a July 17 statement from South Korea’s Financial Services Commission （FSC）.

These include taking out insurance against hacking and malicious attacks against the users’ crypto assets, keeping the customer’s crypto assets separate from the exchange’s assets, and a requirement to keep customer deposits “safely kept in banks.”

VASPs are also required to maintain a certain level of due diligence to prevent money laundering on their platforms and must report any suspicious transactions to the regulator.

“VASPs should maintain a surveillance system for suspicious transactions at all times and immediately report suspicious trading activities to the Financial Supervisory Service (FSS),” it stated.

Cointelegraph

“After going through investigations by the financial and investigative authorities, those who are found to have engaged in unfair trading activities may be subject to criminal punishment or penalty surcharge,” it added.

Concerns Among South Korean Crypto Exchanges

Crypto exchanges in South Korea have recently voiced concerns that the rules would result in them simultaneously delisting a mass of tokens. On July 3, Cointelegraph reported that a group of 20 South Korean crypto exchanges will review a total of 1,333 cryptocurrencies over the next six months as part of the new crypto user protection laws, meaning “the possibility of mass delisting occurring all at once is unlikely,” according to the Digital Asset Exchange Alliance （DAXA）.

Meanwhile, South Korea’s ruling party, the People’s Power Party, officially proposed delaying the implementation of the country’s tax on crypto trading profits. On July 12, the party submitted the proposal and noted that current sentiment toward crypto assets was deteriorating. The description stated that rapidly imposing taxes on virtual assets is “not advisable at this time.”

解説

• South Korea’s implementation of the “Virtual Asset User Protection Act” represents a significant step towards securing the crypto space for users. By mandating insurance against hacks and segregating customer assets, the regulations aim to build trust and safeguard investments.
• The due diligence and reporting requirements for VASPs highlight the government’s commitment to preventing money laundering and ensuring transparent operations within the crypto industry. These measures can help mitigate risks associated with illicit activities and enhance the overall security of the ecosystem.
• The concerns raised by crypto exchanges regarding potential mass delisting of tokens reflect the challenges of adapting to new regulatory environments. Ensuring compliance without disrupting the market requires

a balanced approach that considers the operational capabilities of exchanges and the protection of users.

• The proposal to delay the implementation of the tax on crypto trading profits indicates the government’s responsiveness to market sentiments. By postponing the tax, authorities aim to create a more favorable environment for the growth of the crypto industry while addressing regulatory concerns gradually.
• Overall, these regulatory changes in South Korea set a precedent for other countries looking to establish comprehensive frameworks for the crypto market. The focus on user protection, transparency, and anti-money laundering measures can contribute to a more secure and stable crypto ecosystem globally.