The South Korean government has taken a significant step in regulating the virtual asset market by approving a decree on the enforcement of the Act on the Protection of Virtual Asset Users (PVAU). Set to come into force on July 19, this decree outlines the methods and procedures the Financial Services Commission (FSC) will employ to ensure the PVAU's effectiveness. From organizing a committee of experts to designating credible financial institutions for managing customer deposits, the FSC's proactive measures aim to safeguard virtual asset users. With stringent rules for cold wallet storage and severe penalties for abnormal trading activities, South Korea is poised to enhance its regulatory framework and protect its burgeoning crypto market.

No Virtual Asset User Protection Without Enforcement

The FSC will organize a committee of government officials and private sector experts to develop a policy on virtual assets that are regulated under legislation other than the PVAU or “deemed to pose no harm to users.” This committee will play a crucial role in shaping the future of virtual asset regulation in South Korea, ensuring that all aspects of the market are covered and that users are adequately protected.

Designation of Credible Financial Institutions

One of the key measures prescribed in the Enforcement Decree is the designation of credible financial institutions eligible to manage deposits made by customers to virtual asset service providers (VASPs). These institutions will be responsible for segregating customer funds from VASP funds and investing them in “risk-free” assets to generate a yield. In the event of a VASP's deregistration or bankruptcy, the designated bank must return customers’ money directly to them, ensuring that users' funds are protected at all times.

Cold Wallet Storage Requirements

The FSC will also determine the proportion of VASP customer virtual assets that must be stored in cold wallets, with the minimum proportion set at 80%. Cold wallets, which are offline storage devices, provide an added layer of security against hacking and other cyber threats. By mandating a high proportion of assets to be stored in cold wallets, the FSC aims to minimize the risk of asset loss due to security breaches.

Reporting Abnormal Trading Activities

The Enforcement Decree includes stringent rules for reporting abnormal trading activities. VASPs are required to monitor and report any suspicious transactions, with severe penalties, including life imprisonment, for those found guilty of engaging in fraudulent activities. These measures are designed to deter illegal activities and ensure a fair and transparent market for all participants.

Virtual Asset Regulation Requires Organization

South Korea has significantly ramped up its crypto-related enforcement actions over the past year. The PVAU, passed into law in July 2023, faced criticism for lacking a comprehensive regulatory framework. However, the new Enforcement Decree addresses these concerns by providing clear guidelines and procedures for the FSC to follow, ensuring that the PVAU is effectively implemented and enforced.

Controversy Over Bitcoin ETFs

The introduction of Bitcoin (BTC) exchange-traded funds (ETFs) in the United States has sparked controversy in South Korea. The FSC urged local brokerages to avoid U.S. funds, but the office of the president opposed this policy. The leading party in the new government has also pressed the FSC to change its stance on BTC ETFs, highlighting the ongoing debate over the regulation of these financial products.

Promulgation of the Enforcement Decree

The Enforcement Decree will be officially announced in early July, marking a significant milestone in South Korea's efforts to regulate the virtual asset market. By providing a clear and comprehensive regulatory framework, the decree aims to protect users and promote the growth of the crypto industry in the country.

Conclusion

The approval of the Enforcement Decree on the Act on the Protection of Virtual Asset Users marks a significant step forward in South Korea's efforts to regulate the virtual asset market. With clear guidelines and procedures for the FSC to follow, the decree aims to protect users and ensure a fair and transparent market. As the decree comes into force on July 19, South Korea is poised to enhance its regulatory framework and safeguard its burgeoning crypto market.

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South Korean Financial Titans Want to Create Virtual Assets Exchange in 2023: Report

According to a Korean publication, Samsung Securities is one of seven prominent South Korean securities firms that have applied for government clearance to establish a virtual asset exchange. The firms aim to create a company to establish an exchange in the first half of next year. The Korean media outlet reported an unidentified executive as saying that project negotiations are nearing completion.

As per the local coverage, Samsung Securities had been researching ways to establish and manage a securities token trading platform but was unable to find the necessary staff to move forward last year. Mirae Asset Consulting, a subsidiary of Mirae Asset Securities, South Korea's largest investment banking and stock brokerage firm by market capitalization, is also looking for individuals to work on cryptocurrencies and non-fungible token (NFT) research and development.

The report also mentioned NH Investment & Securities and Shinhan Financial Investment. Earlier this year, KB Bank announced that it was preparing to launch South Korea's first crypto investment products for ordinary investors.

The establishment of a supposed virtual asset exchange may be aided by regulatory liberalization implemented by Yoon Seok-government, which took office in March. The effort by the securities firms to build the exchange coincides with plans to enact the Digital Assets Framework Act. This will include both security-type tokens and non-security-type tokens and determine which domestic virtual assets belong in which category, as per the report.

The country's Financial Services Commission has already been chastised for its oversight of cryptocurrency exchanges. Earlier this month, the South Korean Financial Intelligence Unit discovered that 16 foreign-based crypto exchanges, including KuCoin, Poloniex, and Phemex, were operating without legal approval and initiated a series of actions against them, such as demanding platforms to halt their operations in the nation.

Japan Plans To Allow VCs To Invest Directly in Crypto Startups

Japan is seeking to relax its venture capital (VC) crypto investment rules, allowing VCs to invest in Web3 startups that only issue cryptocurrencies. According to local media outlet Coinpost, the Japanese Cabinet has approved revisions to the Act on Strengthening Industrial Competitiveness.

As part of the proposed amendments, the Cabinet seeks to add crypto assets to the list of assets that investment business limited partnerships (LPS) can acquire. LPSes are typically funds that invest in unlisted companies and startups.

The legal reform has been submitted to the legislative body and will be debated on. Previously, LPS operators were prohibited from holding crypto assets. If approved, the move would allow VCs to invest directly in crypto assets, potentially revolutionizing the way Web3 firms raise funding in Japan. Under existing rules, startups can only offer VCs shares in their companies, as the law blocks them from giving LPS investors crypto.

The government plans to submit a bill to parliament later this year to formalize the changes to the VC crypto investment rules. Lawmakers would still need to approve the amendment, but no government-proposed crypto legislation has failed to receive parliamentary approval in Japan so far.

This move comes amidst great scrutiny over “unlawful” crypto transactions to exchanges. The Financial Services Agency (FSA), Japan's financial regulator, has requested banks to strengthen monitoring as it attempts to clamp down on fraudulent crypto transactions.

Taiwan Tightens Crypto Regulations, Considers Spot Bitcoin ETFs

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