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The South Korean government has approved a decree to enforce the Act on the Protection of Virtual Asset Users (PVAU), which will take effect simultaneously with the main law on July 19.
The Enforcement Decree outlines specific methods and procedures that the Financial Services Commission (FSC) will employ to ensure the effectiveness of the PVAU. These include both proactive measures and oversight procedures to be conducted in accordance with the new legislation.
Ensuring Virtual Asset User Protection
The FSC will establish a committee comprising government officials and private sector experts tasked with formulating policies for virtual assets covered under laws other than the PVAU or deemed to pose minimal risk to users.
Additionally, credible financial institutions designated by the FSC will manage customer deposits held by virtual asset service providers (VASPs). These funds must be segregated from VASP assets and invested in “risk-free” assets under agreements that generate yields. In the event of VASP deregistration or bankruptcy, banks are obligated to directly return customer funds.
To enhance security, the FSC will specify that at least 80% of VASP customer digital assets must be stored in cold wallets. VASPs may impose restrictions on deposits and withdrawals under specific circumstances. Stringent rules for reporting abnormal trading activities are also established, with penalties including up to life imprisonment, alongside complex regulations distinguishing public from non-public information.
Regulatory Organization for Virtual Assets
South Korea has significantly intensified its enforcement actions related to cryptocurrencies over the past year. The PVAU, enacted in July 2023, initially faced criticisms for its regulatory gaps and framework.
The Enforcement Decree is set to be officially promulgated in early July, marking a critical step in South Korea’s efforts to regulate and secure its virtual asset market amidst evolving global trends and local policy debates.
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