The South Korean National Assembly has passed the Virtual Asset User Protection Act during a plenary session on June 30, according to local media SBS. This legislation consolidates 19 different crypto-related bills with the aim of establishing a regulatory framework for the industry and defining digital assets as securities. The primary focus of the act is to enhance investor protection in light of numerous crypto-related scandals that have occurred in the country over the past year.
The new legislation introduces rules to prevent and penalize illicit financial activities, market manipulation, and insider trading based on nonpublic information. Violators will face fines equivalent to at least twice the amount of profit gained from unfair trading practices, along with a minimum prison sentence of one year. Furthermore, the act establishes regulations to bring crypto-related firms under the jurisdiction of financial services regulations. These regulations include minimum capital requirements in the form of reserve funds, insurance for customer deposits, and the maintenance of records for all virtual assets held in custody. The legislation also grants supervisory and investigative powers over crypto platforms and companies to the country’s Financial Services Commission and central bank.
Lee Suh Ryoung, the chief secretary general of the Korea Blockchain Enterprise Promotion Association, expressed to Bloomberg News that while the new rules represent a positive step forward, applying traditional financial rules to digital assets may not be the most appropriate approach. These new regulations are expected to address some of the public outcry that the government has faced following the collapse of Terra LUNA, which prosecutors have claimed to be the largest financial fraud in the history of South Korea. The country has grappled with multiple crypto-related scandals, further underscoring the need for stringent rules within the industry.
In May, South Korean prosecutors indicted Coinone executives on allegations of market manipulation and paid listings of tokens. Additionally, an investigation was launched into a prominent lawmaker’s crypto holdings, as the official was involved in a bill seeking to remove taxes on virtual assets. The investigation revealed a significant amount of a now de-listed cryptocurrency called WEMIX. The investigation is still ongoing and has yet to reach a conclusion.