South Korea’s stringent new regulations aimed at safeguarding users of cryptocurrency exchanges came into force on July 19. The Financial Services Commission (FSC), South Korea’s financial security regulator, announced the implementation of the “Virtual Asset User Protection Act,” which imposes several requirements on virtual asset service providers (VASPs) to enhance the security of user assets.

Key Requirements for VASPs

The new regulations mandate VASPs to undertake a series of protective measures. These include securing insurance against hacking and malicious attacks, segregating customer assets from the exchange’s own assets, and ensuring customer deposits are safely kept in banks. Additionally, VASPs must maintain due diligence to prevent money laundering and report any suspicious transactions to the regulator.

“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 FSC stated. Violations of these rules may result in criminal punishment or financial penalties following investigations by financial and investigative authorities.

South Korea’s Financial Services Commission stated that the laws will take effect from July 19. Source: FSC

Concerns Among Crypto Exchanges

South Korean crypto exchanges have expressed concerns that these rules could lead to widespread delisting of tokens. On July 3, Cointelegraph reported that 20 South Korean crypto exchanges would review 1,333 cryptocurrencies over the next six months as part of the new regulations. However, the Digital Asset Exchange Alliance (DAXA) assured that a mass delisting is unlikely to occur all at once.

Delay in Crypto Tax Proposal

In a related development, 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 a proposal citing the deteriorating sentiment toward crypto assets. The proposal argued that rapidly imposing taxes on virtual assets is “not advisable at this time.”

These developments mark a significant shift in South Korea’s approach to regulating the cryptocurrency market, aiming to enhance security and investor confidence in the rapidly evolving digital asset landscape.