The Financial Services Commission (FSC), South Korea’s financial regulator, has issued directives to 29 registered cryptocurrency exchanges, including major platforms like Upbit, Bithumb, Coinone, Korbit, and Gopax. These exchanges must now conduct regular evaluations of the tokens listed on their platforms to ensure compliance with upcoming regulatory requirements.
Implementation of the Virtual Asset User Protection Law
According to a report in The Korea Times, South Korea will begin enforcing the Virtual Asset User Protection Act by July 19, 2024. This new legislation aims to enhance the safety and security of cryptocurrency trading for users by imposing stringent regulations on token listings and trading practices.
The Virtual Asset User Protection Act introduces severe penalties for violations. These include:
- Criminal Penalties: Offenders may face fixed-term imprisonment of more than one year.
- Financial Fines: Violators could be fined between three to five times the amount of their illegal profits.
Under this new regulatory framework, the 29 registered crypto exchanges are required to evaluate over 600 tokens currently listed on their platforms. The law stipulates that these exchanges must adhere to stricter review guidelines for both new and existing tokens, ensuring that all listed assets comply with the updated standards.
| Requirement | Description |
|---|---|
| Initial Review | Exchanges must conduct an initial review of all tokens against new guidelines. |
| Ongoing Reviews | Regular maintenance reviews every three months. |
| Compliance Enforcement | Stricter criteria for listing and delisting tokens. |
| Penalties for Violations | Severe criminal and financial penalties for non-compliance. |
The law mandates a comprehensive review process:
- Initial Evaluation: Exchanges must perform an initial evaluation of all tokens to ensure they meet the new regulatory criteria.
- Semi-Annual Reviews: Following the initial review, exchanges are required to reassess the listed tokens every six months.
- Quarterly Maintenance: Post the semi-annual review, exchanges must carry out maintenance reviews every three months to monitor ongoing compliance.
This structured review process is designed to weed out tokens that fail to meet the necessary security and operational standards, thus protecting investors and maintaining market integrity.
Background and Development of the Regulation
In early February 2024, the South Korean government updated the Virtual Asset User Protection Act, reflecting its ongoing commitment to regulating the burgeoning cryptocurrency sector. By April, the FSC had already indicated plans to implement more rigorous guidelines for token listings on crypto exchanges.
The FSC had previously suggested several measures to enhance market security, such as prohibiting the listing of tokens from compromised or poorly managed projects. This includes tokens linked to projects with unresolved security issues or those that have experienced significant breaches. The new standards are expected to prevent such tokens from being listed on local exchanges, thereby protecting investors from potential losses.
Beyond the immediate scope of the new law, the FSC is actively working on additional regulatory guidelines for cryptocurrency transactions on exchanges. These new rules are anticipated to come into effect by July 2024, in tandem with the Virtual Asset User Protection Act.
Organizational Changes for Better Regulation
In response to the evolving needs of the cryptocurrency sector, South Korean authorities are also restructuring their regulatory bodies. The FSC plans to establish a dedicated bureau focused exclusively on virtual assets. This bureau will be responsible for overseeing the comprehensive regulatory framework governing the industry. The proposal for this new bureau was set to be introduced on June 17, with a review process scheduled for June 18.
| Date | Event Description |
|---|---|
| February 2024 | Update to the Virtual Asset User Protection Act. |
| April 2024 | FSC hints at stricter guidelines for token listings. |
| June 17, 2024 | Proposal for new FSC bureau to be introduced. |
| June 18, 2024 | Review of the new bureau proposal. |
| July 19, 2024 | Enforcement of the Virtual Asset User Protection Act. |
The introduction of these regulations signifies a major shift in how the South Korean government manages and oversees the cryptocurrency industry. For exchanges, the requirements to regularly review and maintain compliance for token listings could mean substantial operational changes.
For users, these regulations promise greater protection and security in their crypto transactions. However, the impact on smaller tokens and new projects remains to be seen, as stricter guidelines may pose challenges for their listings on major exchanges.
The upcoming enforcement of the Virtual Asset User Protection Act marks a critical step in South Korea’s regulatory approach to cryptocurrencies. By mandating regular reviews and implementing stringent penalties for non-compliance, the FSC aims to create a safer and more secure trading environment for all participants. As the country continues to refine its regulatory framework, the establishment of a dedicated bureau for virtual assets underscores the importance of effective oversight in the dynamic world of digital finance.
Featured image credit: DALL-E by ChatGPT