South Korea Enforces Virtual Asset Law

The bill, scheduled to take effect on July 19, does not specify the procedures for enforcing the Protection of Virtual Asset Users Act.

The South Korean government has approved a decree enforcing the Act on the Protection of Virtual Asset Users (PVAU). The two statutes will be implemented concurrently on July 19.

The Financial Services Commission (FSC) will implement the methods and procedures outlined in the Enforcement Decree to guarantee the effectiveness of the PVAU. They are occasionally active steps and occasionally oversight of the PVAU’s procedures.

No virtual asset users protection without enforcement

A policy on virtual assets regulated under legislation other than the PVAU or “deemed to pose no harm to users” will be developed by a committee of government officials and private sector experts organized by the FSC.

The FSC will designate credible financial institutions as eligible to administer customer deposits to virtual asset service providers (VASPs).

Customer funds must be invested in “risk-free” assets under an agreement with the VASP and segregated from VASP funds to generate a yield. The bank is required to return customers’ funds directly to them if the VASP is deregistered or goes insolvent.

The proportion of VASP customer virtual assets that must be retained in cold wallets will be determined by the FSC. The proportion will be at least 80%. VASPs can restrict deposits and withdrawals in certain situations.

Complex regulations exist to distinguish between public and nonpublic information and rules for reporting anomalous trading activities that carry up to life imprisonment penalties.

Virtual asset regulation requires the organization

South Korea has significantly increased its enforcement efforts regarding cryptocurrency in the past year. In July 2023, the VPAU was enacted into law. It was criticized on numerous occasions due to its inadequate regulatory framework.

The asset product was controversial in South Korea following the introduction of Bitcoin exchange-traded funds (ETFs) in the United States.

The FSC advised local brokerages to refrain from investing in U.S. funds; however, the president’s office opposed this policy. The FSC has been pressured by the leading party in the new government to modify its position on BTC ETFs.

The Enforcement Decree will be formally announced and promulgated in early July.