South Korean crypto exchanges have launched the first significant set of regulations for digital assets. The BIT Journal reports that the new framework, called the Protection of Virtual Asset Users (PVAU), introduces rigorous requirements for Virtual Asset Service Providers (VASPs). One of the key mandates is that VASPs must hold at least 80% of their users’ digital assets in cold storage. This measure aims to enhance security and protect users from potential cyber threats.
The Financial Services Commission (FSC) will oversee the implementation of these regulations. The FSC will designate reputable financial institutions to manage fiat deposits made to South Korean crypto exchanges as part of the framework. Additionally, South Korean crypto exchanges must segregate customer funds from their own and invest them in “risk-free” assets to generate a yield. This ensures that the designated financial institutions will directly repay customer funds in the event of a cryptocurrency exchange bankruptcy.
South Korean Crypto Exchanges: Response to Past Collapses
These stringent measures came in response to the collapse of Terra-Luna and FTX, which resulted in the loss of billions of dollars in customer funds. The implosions of these entities had a significant impact on South Korea, particularly FTX, which saw over 6% of its traffic coming from the East Asian country.
In addition to the cold storage requirement, South Korean crypto exchanges must also be insured or have a reserve fund in place to mitigate damage in a hack or liquidity crisis. Furthermore, the new regulations include provisions for South Korean crypto exchanges to restrict user deposits and withdrawals under certain conditions, providing additional control over irregular activities.
The Financial Supervisory Service (FSS), the executive arm of the FSC, has established a real-time monitoring system in collaboration with South Korean crypto exchanges. This system also launched on July 19, aims to constantly monitor abnormal transactions. The regulator claims that this system will cover 99.9% of the country’s crypto trading volume. If any abnormalities are identified, they must be reported to the FSS via a dedicated data transmission line.
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When the system was introduced earlier this month, 29 crypto exchanges, including major players like Upbit, Bithumb, Coinone, Korbit, and Gopax, registered with the FSS. This collaboration marks a significant step towards ensuring the safety and integrity of the cryptocurrency market in South Korea.
The introduction of these regulations follows South Korea’s Ministry of Economy and Finance delaying the implementation of a 20% tax on crypto gains, which was initially set to take effect early next year. Reports suggest that the ruling party is considering postponing this tax until 2028.
According to news sources, these new regulations are a proactive step by the South Korean government to build a safer and more secure environment for cryptocurrency investors. By enforcing stringent requirements on South Korean crypto exchanges, the government aims to prevent future incidents similar to the collapse of Terra-Luna and FTX. The requirement for 80% of assets to be held in cold storage is expected to significantly reduce the risk of cyber-attacks and ensure that users’ funds are safeguarded.
The real-time monitoring system introduced by the FSS is another critical component of this regulatory framework. The system aims to detect and address any suspicious activities promptly by providing constant oversight of transactions. This will help maintain the integrity of the cryptocurrency market and protect investors from potential fraud or market manipulation.
News sources highlight that these measures reflect the South Korean government’s commitment to fostering a secure and trustworthy cryptocurrency market. By implementing these regulations, South Korea sets a precedent for other countries looking to regulate the rapidly growing digital asset space. As the cryptocurrency market continues to evolve, such proactive measures are essential to ensure investors’ protection and the financial system’s stability.
In conclusion, the new regulations introduced by South Korea mark a significant step towards safeguarding cryptocurrency investors. By mandating that South Korean crypto exchanges hold 80% of assets in cold storage, segregate customer funds, and implement real-time monitoring systems, the government aims to create a safer and more secure environment for digital asset trading. These measures, reported by The BIT Journal, demonstrate the government’s proactive approach to regulating the cryptocurrency market and protecting investors from potential risks.
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