Key Insights:

• South Korea’s Virtual Asset User Protection Act establishes new standards in the crypto market, enhancing overall integrity.
• Under the Act, the FSC acquires regulatory control over VASPs, ensuring efficient supervision and monetary stability.
• Innovative provisions of the Act effectively protect against crypto breaches and theft, thereby securing users’ virtual assets.

In a recent report, leading data analytics firm Chainalysis sheds light on South Korea’s progressive approach to combating integrity concerns in its crypto landscape. The firm highlights the far-reaching implications of the Virtual Asset User Protection Act, passed by the South Korean National Assembly last week.

1/7 On 30th June, the South Korean National Assembly passed the Virtual Asset User Protection Act, which establishes key safeguards for virtual asset users. What does the Act mean for digital asset players in Korea ???

— Chainalysis (@chainalysis) July 3, 2023

Strengthening User Protection and Market Integrity

Under this groundbreaking act, the Financial Services Commission (FSC) supervises Virtual Asset Service Providers (VASPs). These providers encompass various entities involved in virtual asset transactions, including brokers, platform operators, and custodians. By delegating day-to-day supervision to the Financial Supervisory Service, the FSC aims to ensure efficient monitoring of VASPs and their activities, thus fostering a more secure and transparent ecosystem.

The Bank of Korea has also been granted authority to request relevant data from these businesses. This data will maintain monetary and financial stability and promote the smooth functioning of payment and settlement systems. Consequently, South Korea is taking proactive steps to ensure the integrity of its virtual asset market.

One of the unique requirements introduced by the Act is the establishment of comprehensive criteria and processes for listing new tokens. The FSC will meticulously scrutinize these criteria and promptly suspend trading of the tokens if illicit activities are suspected. This measure significantly reduces the risk of fraudulent or illicit activities in the market.

Safeguarding Virtual Assets: Strengthening User Confidence

Moreover, the Act emphasizes the importance of safeguarding users’ virtual assets. VASPs are now mandated to segregate users’ assets, holding a stipulated percentage in cold wallets. This step adds a layer of protection to users’ crypto portfolios, guarding against potential breaches and theft. Furthermore, VASPs must either subscribe to insurance coverage or maintain reserves to compensate users in the event of theft or technological failures, further enhancing user confidence in the market.

Addressing market integrity concerns, the Act explicitly prohibits insider trading, collaboration, and wash trading practices. These measures aim to combat market abuse effectively, creating a fair and transparent playing field for all participants. Additionally, VASPs are restricted from trading tokens issued by themselves or related entities, ensuring impartiality and preventing potential conflicts of interest.

The Virtual Asset User Protection Act passed by South Korea signifies a significant milestone in the country’s crypto regulation efforts. The comprehensive framework not only reinforces user protection but also strengthens market integrity. By introducing stringent requirements for VASPs, ensuring the segregation of assets, and tackling market abuses head-on, South Korea sets a commendable example for other jurisdictions to follow.