South Korea adopts first law to protect cryptocurrency investors

South Korea Implements First Cryptocurrency Regulation Law

South Korea has recently implemented its first cryptocurrency regulation law aimed at protecting investors in virtual assets. The new law was developed and passed quickly in response to the collapse of the blockchain ecosystem Terra and the cryptocurrency exchange FTX in 2022, which highlighted the need for stricter regulation in the cryptocurrency sector.

New Requirements for Cryptocurrency Exchanges

The law on protecting users of virtual assets is designed to combat fraud, market manipulation, and insider trading by imposing stricter requirements on cryptocurrency exchanges. Now cryptocurrency service providers are required to store at least 80% of user crypto deposits in cold storage, separate from the company’s own funds. They must also transfer the storage of user cash funds to licensed local banks and maintain cryptocurrency reserves equal to customer deposits.

Furthermore, crypto services in Korea must either be insured or create a contingency fund to protect against potential hacking attacks or liquidity crises. Exchanges are required to implement real-time monitoring systems to detect and report suspicious trading activities. In parallel, the Financial Services Commission (FSC) has launched its own monitoring system to combat fraud in the cryptocurrency market.

Consequences for Non-Compliance

Companies that do not comply with the new requirements may face fines or suspension of operations. Fraud resulting in damages exceeding 5 billion won may result in life imprisonment. The new law regulates the distribution of virtual assets, but not their issuance. Legislators are already discussing further steps, such as regulating issuers and reviewing the ban on institutional investments in cryptocurrencies and stablecoins.

Korean Cryptocurrency Market Overview

The Korean cryptocurrency market is one of the largest in the world. According to analysts at Kaiko, in the first quarter, the Korean won was the most frequently used fiat currency for trading cryptocurrencies.