Cryptocurrency investors in South Korea can expect increased safeguards as the government approves new regulations designed to enhance user security in case of a crypto exchange bankruptcy.
The Financial Services Commission (FSC) announced in a press release on June 25 that the enforcement decree, set to take effect on July 19, is part of a comprehensive effort to regulate the nation’s digital asset market.
Under the newly approved decree, Virtual Asset Service Providers (VASPs) will be required to separate customer deposits from their operational funds and ensure they are held in reputable financial institutions. This crucial measure aims to mitigate the risks associated with potential exchange insolvencies, ultimately bolstering user trust in the Korean cryptocurrency market.
Additionally, the regulations mandate that VASPs store at least 80% of users’ digital assets in cold storage, a highly secure offline system that offers superior protection against hacks and losses. Depending on the VASP’s security outlook, regulators may impose even higher cold storage requirements to prevent fraudulent activities and operational closures.
The decree introduces stringent penalties to combat manipulative and fraudulent practices within the crypto market. Offenders could face a minimum of one year in prison or fines up to five times the illegal profits gained from their activities. Furthermore, VASPs may restrict user deposits and withdrawals under certain conditions to control irregular activities.
South Korea has been actively taking legal action against crypto fraud, as evidenced by the recent arrest of 19 members of a fraudulent social media chat group that deceived over 300 investors and resulted in nearly $19 million in losses.
While South Korea has yet to implement official taxation on crypto profits, the ongoing uncertainty surrounding these levies has prompted tax authorities to monitor the situation closely. There are concerns that cryptocurrencies are exploited to evade taxes.
Notably, a South Korean province successfully recovered $4.6 million worth of crypto from 2,300 suspected tax evaders over the past year.
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