Starting from next month, cryptocurrency investors in South Korea will benefit from enhanced protections as new regulations have been approved by the government. These measures, aimed at bolstering user security in the event of a crypto exchange bankruptcy, were announced by the Financial Services Commission (FSC) on Tuesday. The enforcement decree is set to take effect on July 19 as part of a broader initiative to regulate the country’s digital asset market.
South Korea’s new decree mandates Virtual Asset Service Providers (VASPs) to segregate customer deposits from operational funds, ensuring they are held at reputable financial institutions. This measure aims to mitigate risks associated with potential exchange insolvencies, enhancing user trust in the Korean cryptocurrency market.
Under the regulation, VASPs must store at least 80% of users’ digital assets in cold storage—a secure offline system known for its resilience against hacks and losses. Depending on a VASP’s security posture, regulators may impose even higher cold storage requirements to further mitigate risks from fraud or operational closures.
The decree also introduces stringent penalties for manipulative and fraudulent practices in the crypto market. Offenders could face a minimum of one year in prison or fines up to five times the illegal profits gained from their activities, aiming to uphold market integrity and protect investors.
South Korea’s new decree includes provisions for Virtual Asset Service Providers (VASPs) to restrict user deposits and withdrawals under certain conditions, enhancing control over irregular activities in the cryptocurrency market.
In recent legal actions, South Korea has intensified efforts against fraudsters targeting crypto investors. On May 21, authorities arrested 19 members of a fraudulent social media chat group that defrauded over 300 investors of nearly $19 million.
While South Korea has not yet finalized official taxation policies on crypto profits, ongoing deliberations on introducing such levies have contributed to market uncertainty. Tax authorities remain vigilant, monitoring potential cryptocurrency use for tax evasion purposes.
In a noteworthy development on Feb. 22, a South Korean province successfully recovered $4.6 million worth of crypto assets within a year from 2,300 suspected tax evaders.
