South Korea’s Parliament has just passed a comprehensive law governing digital assets, marking a milestone in the regulation and legalization of digital assets. The law, which was approved by the parliament on June 30, 2023, aims to boost investor protection. It also increases crypto oversight by the Financial Services Commission and the Bank of Korea.
The law also defines virtual assets as an “electronic representation of an economic value that can be traded or transferred electronically,” excluding the Central Bank digital currency (CBDC).
How Does South Korea’s New Crypto Law Protect Investors?
One of the largest crypto disasters of 2022 was the implosion of Terraform Labs, the company behind Terra (LUNA) and its stablecoin TerraUSD (UST). Its founder, Do Kwon (Kwon Do-Hyung), is a South Korean Citizen. A lot of Koreans and investors around the world lost money after Do Kwon’s crypto project folded. This fiasco highlighted the need for stricter laws that would protect all stakeholders.
The following are the provisions in the new law governing virtual assets.
- South Korea’s new law mandates that digital assets/crypto service providers keep users’ assets and deposits in separate accounts from their own. This ensures that customers’ funds are not mixed with or used for other purposes by the company. This prevents unethical practices like those of the notorious FTX exchange, which was accused of manipulating the market and misusing customers’ funds.
- Crypto service providers are required to have insurance
- A portion of the service provider’s reserves should be kept in cold wallets to mitigate risk from hacking and system failures.
- Service providers are required to keep records of all transactions
- The crypto bill also outlines penalties for price manipulation, false advertising, and failing to provide required information to investors. Culprits will be penalized with at least a year in prison or fines that could be as much as five times the profit gained from unscrupulous practices.
Focus on Customer Protection
In a nutshell, the new law requires crypto companies not to comingle funds and protect customer assets by having insurance and using cold wallets. It also focused on making sure that customers are not misled with false information.
The number of crypto owners in South Korea has more than tripled, from less than two million in early 2021 to 6.9 million by June 2022, which is about 13% of the population. Their lawmakers understand that crypto adoption is increasing and should focus on customer protection. The crypto industry and investors aspire to this type of regulatory clarity. A law that protects investors without stifling the growth of digital assets.
Source: Yahoo Finance
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