South Korea Approves Crypto Bill to Safeguard Investors
South Korea's National Assembly has passed a bill aimed at safeguarding the interests of cryptocurrency investors, marking the country's initial move towards establishing a legal framework for digital assets. The legislation, known as the Virtual Asset User Protection Act, is set to become law within a year, according to the official website of the Assembly. The bill, which consolidates 19 proposals from lawmakers, imposes several requirements on crypto service providers. These include the obligation to secure user assets and deposits, maintain insurance coverage, hold a portion of reserves in offline cold wallets to mitigate risks of hacks or system failures, and keep records of all transactions. Additionally, the legislation includes penalties for activities such as price manipulation, false promotion of crypto assets, and failure to provide necessary investor information. Convictions for such violations could result in a minimum prison term of one year or a fine ranging from three to five times the amount of illicit profits. The bill defines "virtual assets" as electronic representations of economic value that can be traded or transferred electronically. Notably, it excludes the central bank digital currency (CBDC) issued by the Bank of Korea, the country's central bank. However, the legislation grants the Bank of Korea the authority to request data from cryptocurrency platforms, a power it had been advocating for with financial regulators. The central bank has expressed concerns about the potential impact of the cryptocurrency market on financial and monetary stability, necessitating some degree of oversight. Hwang Suk-jin, a member of the Ruling People Power Party's Digital Asset Special Committee, highlighted in a May interview with Forkast that the proposed bill aims to establish legal rights for virtual asset users and create a safer and more reliable cryptocurrency market. South Korea was previously home to one of the most active cryptocurrency economies globally, ranking seventh on the Global Crypto Adoption Index compiled by blockchain data platform Chainalysis in 2020. However, the country dropped to the 23rd position on the index in 2022, coinciding with the collapse of the Terra-Luna cryptocurrency and stablecoin, which led to substantial losses for hundreds of thousands of investors. Nevertheless, the Upbit crypto exchange in South Korea continues to maintain its position as the world's third-largest exchange by trading volume, according to CoinMarketCap data. The Terra-Luna incident served as a catalyst for cryptocurrency legislation in South Korea, prompting the establishment of a legal framework with an initial focus on investor protection. The next phase of crypto-related regulations is expected to concentrate on rules governing local companies involved in token issuance and information disclosure. By enacting the Virtual Asset User Protection Act, South Korea aims to foster trust and confidence in the cryptocurrency market, ensuring a more secure environment for investors while also addressing potential risks associated with digital assets.