The South Korean government has given its approval to a decree that enforces the Act on the Protection of Virtual Asset Users (PVAU). Both the decree and the act will take effect on July 19th.
The Enforcement Decree outlines the methods and procedures that the Financial Services Commission (FSC) will employ to ensure the effectiveness of the PVAU. These actions consist of both proactive measures and oversight of procedures carried out in accordance with the act.
To ensure the protection of virtual asset users, the FSC will establish a committee composed of government officials and private sector experts. This committee will develop policies for virtual assets that fall under regulations other than the PVAU, as well as those assets that are considered to pose no harm to users.
In addition, the FSC will designate credible financial institutions that are eligible to manage customer deposits made to virtual asset service providers (VASPs). It is required that customer funds be kept separate from VASP funds and invested in “risk-free” assets that generate yields under an agreement with the VASP. In the event that the VASP is deregistered or goes bankrupt, the bank must directly return customers’ funds to them.
The FSC will also determine the proportion of VASP customer digital assets that must be stored in cold wallets, with a minimum requirement of 80%. VASPs may impose limitations on deposits and withdrawals under specific circumstances. Additionally, there are regulations for reporting abnormal trading activities, with severe punishments, including life imprisonment, for violations. Complex rules are in place to distinguish between public and nonpublic information.
Organizing is crucial for the effective regulation of virtual assets. South Korea has significantly intensified its enforcement actions related to cryptocurrencies in the past year. The PVAU was enacted in July 2023 but faced criticism for its lack of a regulatory framework.
The introduction of Bitcoin exchange-traded funds (ETFs) in the United States sparked controversy regarding this asset product in South Korea. The FSC advised local brokerages to avoid investing in U.S. funds, but the office of the president opposed this policy. The leading party in the new government has also urged the FSC to reconsider its position on BTC ETFs.
The Enforcement Decree will be officially announced in early July.
Source: Wuki
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