Blockchain analytics and compliance firm Chainalysis recently provided insights into the implications of South Korea’s first independent cryptocurrency bill, which was announced on July 3rd.
South Korea Crypto Regs Rolled Out
South Korea’s National Assembly has recently passed the Virtual Asset User Protection Act, marking the first independent legislation specifically addressing digital assets. This new law establishes crucial safeguards for crypto traders and users.
To ensure compliance, South Korean financial regulators have mandated supervision over virtual asset service providers (VASPs). This oversight encompasses entities involved in activities like buying, selling, exchanging, transferring, and storing cryptocurrencies, including brokers, platform operators, and custodians, as confirmed by Chainalysis.
Furthermore, the Bank of Korea has been granted the authority to request data from these businesses when necessary for maintaining monetary and financial stability and the smooth operation of payment and settlement systems.
The legislation also includes various user protections. For instance, customers’ fiat currency must be held in banks or licensed institutions to safeguard them in case of a crypto exchange or company collapse or closure. Additionally, a certain percentage of users’ crypto assets must be stored in cold wallets.
Moreover, crypto companies in South Korea will be required to have insurance coverage for their reserves, providing protection to customers against virtual asset loss due to theft or technological failures.
The regulations explicitly prohibit insider trading, collusion, wash trading, and other forms of market abuse. Chainalysis also clarified that VASPs are not allowed to trade tokens issued by themselves or related entities.
These regulations bear similarities to the ones recently introduced in Hong Kong. However, industry executives, such as Lee Suh Ryoung, the chief secretary general of the Korea Blockchain Enterprise Promotion Association, expressed reservations. Ryoung believes that the law remains rooted in the perspective of traditional finance and may stifle the industry rather than promote its growth.
Asian Nations Rushing to Regulate
Despite the perceived strictness of the new regulations, countries in Asia are rushing to develop regulatory frameworks for the cryptocurrency asset class.
Following Hong Kong’s recent introduction of legislation for VASPs, the region is now focusing on establishing a regulatory framework for stablecoins.
In the competition to become a regional digital asset hub, Japan has also intensified its crypto regulations.
Singapore has recently granted payment licenses to several US companies, including Circle and Ripple in June. Additionally, the country’s central bank has proposed new exchange rules that aim to safeguard customer assets through a Statutory Trust.
Thailand’s Securities and Exchange Commission (SEC) has issued guidelines for crypto exchanges to display disclosure statements. However, there has been a setback as platforms are now prohibited from offering returns to customers who lend crypto assets.