South Korea is preparing to enforce a new law that will protect crypto asset users from market manipulation, illegal trading, and information abuse, according to the local media. The law, which will take effect on July 19, 2024, will impose heavy fines and prison sentences for offenders, including life imprisonment for those who make more than 5 billion won from crypto-related crimes.
The law, officially known as the Virtual Asset User Protection Act, was passed by the National Assembly in July 2023, with a one-year grace period. The Financial Services Commission (FSC), the country’s top financial regulator, announced on Wednesday that it had completed the preliminary legislative notice on the enforcement decree and supervisory regulations of the law.
The FSC said that the law aims to address various concerns within the virtual asset landscape, especially the prohibition of market manipulation, illegal trading practices, and the misuse of undisclosed material information related to virtual assets. The FSC also said that it is setting up infrastructure for supervisory, inspection, and investigation tasks as stated in the law.
Severe Penalties For Violators
According to the law, offenders who violate the regulations will face criminal prosecution, including imprisonment for a minimum of one year, or fines ranging from three to five times the amount of illegal profits. In cases where unfair profits exceed 5 billion won, perpetrators may face a maximum sentence of life imprisonment, coupled with fines equivalent to twice the amount of unfair gains.
The law also stipulates that virtual asset business operators, such as exchanges, must adhere to stringent regulatory directives issued by financial authorities. For example, they must ensure the secure management of user deposits held in banks for virtual asset transactions, and securely store over 80% of users’ virtual assets’ economic value in offline storage, distinct from internet-connected systems, to mitigate risks like hacking or system failures.
Additionally, they must either acquire insurance coverage or set aside reserves equivalent to over 5% of the total economic value of virtual assets, excluding those stored offline. These measures will mitigate potential losses and safeguard users’ assets in unforeseen circumstances.
A Crypto Hub With Consumer Protection
South Korea is one of the leading countries in the world in terms of crypto adoption and innovation. However, it has also witnessed several cases of fraud and scams involving virtual assets. For instance, the CEO of Bitsonic, a former major crypto exchange, was sentenced to seven years in prison for his involvement in a $10 million fraudulent scheme that involved inflating the trading volume and price of Bitsonic Coin, the exchange’s native token.
The FSC said that the new law will help prevent such incidents and enhance consumer protection within the virtual asset realm. The FSC also said that it will oversee compliance with the law, conducting routine inspections of virtual asset business operators to ensure adherence to regulations.
By introducing stricter regulations and penalties for crypto crimes, South Korea aims to become a crypto hub that balances innovation and consumer protection. The law is expected to boost the credibility and transparency of the virtual asset industry, as well as the trust and confidence of the users.
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