The Financial Services Commission (FSC) of South Korea has announced the establishment of a new nonprofit organization designed to safeguard virtual assets in case a cryptocurrency exchange goes out of business.
The organization, tentatively called the Digital Asset Protection Foundation, will be tasked with securing the return of virtual assets to their rightful owners from defunct exchanges, according to the FSC. It will also help to provide more robust asset security for users while minimizing market disruption caused by exchange closures.
The Commission emphasized its ongoing efforts to protect user assets in the event of an exchange shutdown, though it acknowledged persistent concerns. These include lengthy delays in asset recovery, often due to difficulties in contacting exchange operators or users failing to claim their assets. It also pointed out how hard it is to expect defunct exchanges to prioritize protecting and returning virtual assets to customers.
As per the FSC’s statement, out of the 22 cryptocurrency exchanges operating in South Korea, 10 have already closed, and 3 have temporarily suspended services.
The Commission also noted that the country’s Digital Asset eXchange Association (DAXA) has been pushing for an organization specifically focused on safeguarding users’ assets from failed exchanges in the light of these challenges.
The FSC affirmed that the new Foundation could be established as early as next month.
The move from the FSC is the latest in a series of actions to strengthen user security and boost confidence in South Korea’s crypto market. Following the full implementation of its newly enforced ‘Virtual Asset User Protection Act,‘ the agency introduced new regulations to protect cryptocurrency investors in the event of bankruptcy. Crypto exchanges are now required to separate customer deposits from their operational funds and hold them in trusted financial institutions.
The agency also reportedly established a new monitoring system to intensify scrutiny of domestic cryptocurrency exchanges and combat questionable trading practices.
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