South Korea Implements Stringent Regulations for Crypto Exchanges

South Korea has rolled out its first major set of cryptocurrency regulations aimed at protecting crypto investors in the nation. The new framework, known as the Protection of Virtual Asset Users (PVAU), introduces strict requirements for Virtual Asset Service Providers (VASPs).

One of the key requirements under the PVAU mandates VASPs to hold a minimum of 80% of users’ digital assets in cold storage. This measure is designed to enhance the security of customer funds and mitigate risks associated with exchanges going bankrupt. In the event of a collapse, designated financial institutions will directly repay customer funds, providing an additional layer of protection.

In addition to the cold storage mandate, VASPs are required to segregate customer funds from their own and invest them in “risk-free” assets to generate a yield. This measure aims to safeguard customer funds and ensure they are not at risk in case of exchange failures.

To further protect users, VASPs are also required to be insured or have a reserve fund in place to address potential hacks or liquidity crises. The new regulations also empower VASPs to restrict user deposits and withdrawals under certain conditions, enabling them to monitor and control irregular activities effectively.

Furthermore, the Financial Supervisory Service (FSS) has established a real-time monitoring system in collaboration with cryptocurrency exchanges to oversee abnormal transactions. This system, which covers 99.9% of the country’s crypto trading volume, requires exchanges to report any identified abnormalities to the FSS promptly.

With the recent enforcement of the PVAU and real-time monitoring system, South Korea is taking proactive steps to enhance the safety and transparency of its cryptocurrency market. These measures come in response to significant exchange failures like the collapse of Terra-Luna and FTX, which have necessitated stronger regulatory oversight to safeguard investors.

As South Korea continues to strengthen its regulatory framework for cryptocurrencies, investors can expect increased security and protection for their digital assets. These developments signal a commitment to fostering a safe and stable environment for crypto investment in the country.

As part of its ongoing efforts, South Korea is also reevaluating the implementation of a proposed 20% tax on crypto gains, with discussions underway to potentially delay its implementation until 2028. This reflects the government’s responsiveness to local pressures and its commitment to ensuring a balanced regulatory approach to the cryptocurrency industry.