By: Isha Das
On December 11, The Korean Financial Services Commission (FSC) introduced a thorough set of regulations within the 'Act on the Protection of Virtual Asset Users', set to be operational from July 19, 2024. These new regulations are designed to protect digital asset investors while also increasing regulatory oversights of South Korea's rapidly growing crypto industry.
Virtual Asset Service Providers (VASPs) are obligated to securely manage and store customer deposits as well as virtual assets. Catastrophic events such as the Terra LUNA debacle have triggered the need for such comprehensive policies. Notably, the legislation implements sanctions that could take form in criminal penalties or fines, targeting fair trading within the digital asset market.
The proposal differs in its stance towards tokens omitted from the Act; expanding the list to leave out digital tokens like electronic bonds and non-fungible tokens (NFTs). A significant part of the proposal is the defining of the role of financial institutions, chiefly banks, who will function as stewards for VASP customers' resources.
The FSC has elevated the benchmark for VASPs, demanding they keep at minimal 80% of customer assets in cold storage. The new law would also mandate insurance or reserves to protect a substantial portion of the customer assets stored in hot wallets. Furthermore, VASPs will now have to monitor abnormal transactions, with detailed protocols for reporting suspicious activities and instituting fines for unfair trading.
These changes proposed by the FSC represent a fundamental leap in creating a structured and secure digital asset market. The regulations are now open for public discussion until January 22, 2024.
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