Global: South Korea Enforces Stringent Crypto Exchange Regulations

South Korea’s highly anticipated regulations for crypto exchanges, aimed at safeguarding users’ crypto assets, came into effect on July 19. These regulations, enacted by South Korea’s Financial Services Commission (FSC), are encapsulated in the “Virtual Asset User Protection Act.”

According to a statement released by the FSC on July 17, Virtual Asset Service Providers (VASPs) must implement several measures to protect users’ crypto assets. These measures include:

• Insurance Coverage: VASPs must obtain insurance to protect against hacking and malicious attacks targeting users’ crypto assets.
• Asset Segregation: VASPs are required to keep customers’ crypto assets separate from the exchange’s assets.
• Safe Deposits: Customer deposits must be securely held in banks.
• Anti-Money Laundering: VASPs must maintain a high level of due diligence to prevent money laundering on their platforms and report any suspicious transactions to the regulator.

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

The statement also noted that those found to have engaged in unfair trading activities, following investigations by financial and investigative authorities, may face criminal charges or penalty surcharges.

Concerns Among South Korean Crypto Exchanges

South Korean crypto exchanges have raised concerns that these regulations could lead to the mass delisting of tokens. On July 3, Cointelegraph reported that a group of 20 South Korean crypto exchanges would review a total of 1,333 cryptocurrencies over the next six months as part of the new crypto user protection laws. The Digital Asset Exchange Alliance (DAXA) suggested that the likelihood of simultaneous mass delisting is low.

In addition to these regulations, the South Korean government plans to launch a crypto transaction monitoring system.

Meanwhile, South Korea’s ruling party, the People’s Power Party, has proposed delaying the implementation of the country’s tax on crypto trading profits. On July 12, the party submitted this proposal, noting that the current sentiment towards crypto assets is deteriorating. They argued that rapidly imposing taxes on virtual assets is “not advisable at this time.”