A groundbreaking bill that was reportedly intended to protect the rights of crypto investors and create a legal framework for digital assets has been officially passed by South Korea‘s National Assembly. According to the official website of the Assembly, the proposal, also known as the Virtual Asset User Protection Act, is anticipated to become law within a year.
Details of the Bill
The bill, which consists of 19 proposals from different lawmakers, adds a number of essential features to strengthen investor protection. As a result of the aforementioned bill, cryptocurrency service providers will have to put measures in place like ring-fencing user deposits and assets, keeping insurance coverage, holding reserves in offline cold wallets to reduce the risk of hacking or system failures, and maintaining thorough transaction records.
The legislation also imposes penalties for illegal conduct on the cryptocurrency market, such as price manipulation, misleading advertising of digital assets, and omissions of crucial investment information. Convicted individuals risk a minimum year in jail or fines equal to three to five times the amount of money they made from the infraction.
The term “virtual assets” is used throughout the law to refer to digitally transmitted representations of economic value that can be exchanged or transferred. However, it does not include the central bank digital currency (CBDC) that the Bank of Korea, the nation’s central bank, has produced.
While addressing the worries of cryptocurrency investors, the law also gives the Bank of Korea the right to ask Bitcoin platforms for data. The market for cryptocurrencies needs to be regulated, according to the central bank, which cited possible effects on the economy and the value of money.
Significance of the Bill
The importance of the measure in establishing legal rights for consumers of virtual assets and constructing a safer and more dependable market was emphasized by Hwang Suk-jin, a member of the ruling People Power Party’s Digital Asset Special Committee.
In the Global Crypto Adoption Index of 2020, South Korea’s cryptocurrency economy was one of the most active in the world, placing sixth overall. However, the nation fell to the 23rd spot on the index with the US$40 billion collapse of the Terra-Luna cryptocurrency and stablecoin in 2022.
Nevertheless, according to data from CoinMarketCap, the Upbit cryptocurrency exchange in South Korea is still the third-largest in terms of trading volume worldwide. The failure of Terra-Luna was a key factor in the legislative initiatives in South Korea to establish a regulatory framework for cryptocurrencies, with a primary emphasis on investor protection.
The next stage of crypto-related legislation is anticipated to focus on rules governing token issuance and information disclosure by local businesses. The protection of consumers is emphasized most strongly by this new law.
It requires cryptocurrency businesses to protect customer assets by putting in place mechanisms including independent fund management, insurance, and the usage of secure cold wallets. It also seeks to stop information that can contribute to customer confusion.
Customer protection must be given top priority, as seen by the notable increase in cryptocurrency ownership in South Korea, which went from less than two million users in early 2021 to 6.9 million by June 2022 (representing almost 13% of the population).
This legislation’s introduction provides the regulatory clarity that both the cryptocurrency industry and investors have been seeking, striking a balance between safeguarding investors and promoting the development of digital assets.