On Friday, South Korea’s National Assembly passed the Virtual Asset User Protection Act, the country’s first step in creating a legal framework for cryptocurrencies. This legislation, which is comprised of 19 proposals from lawmakers, is expected to come into effect in one year. It focuses on protecting the interests of cryptocurrency investors by ensuring crypto service providers properly secure users’ deposits and assets, have insurance, and maintain records of all transactions. Additionally, it penalizes any individuals or entities that manipulate prices, make false promotions, or fail to provide required information on investors.
Penalties for violations of this law may include imprisonment lasting at least a year or a fine of three to five times the profits made through such violations. The bill also defines “virtual assets” as an “electronic representation of an economic value that can be traded or transferred electronically,” excluding, however, the Bank of Korea’s central bank digital currency. The bank is given the right to request data from cryptocurrency platforms by this legislation, as it has argued for oversight of the cryptocurrency market due to its potential impact on financial and monetary stability.
In May, Hwang Suk-jin, a Ruling People Power Party’s Digital Asset Special Committee member, said the proposed bill would give virtual asset users legal rights and create a more secure and reliable market for cryptocurrencies. South Korea is one of the most active countries in the world in terms of cryptocurrency, ranking 7th on the Global Crypto Adoption Index in 2020. In 2022, however, the country fell to 23rd place due to the collapse of the Terra-Luna cryptocurrency and stablecoin, which caused massive losses to many investors. Nevertheless, the Upbit crypto exchange in South Korea is still the third largest by trading volume, according to CoinMarketCap data.
The Terra-Luna failure helped push for a legal framework in South Korea to cover cryptocurrencies, with the first stage of the legislation focusing on investor protection. The next stage is expected to center on regulations for local companies in token issuance and information disclosure.
