- South Korea enacts new crypto law to enhance user security and market order as of July 19, 2024.
- Major exchanges like Upbit and Bithumb report significant trading volume declines following regulatory changes.
On July 19, 2024, South Korea enforced the Act on the Protection of Virtual Asset Users, significantly altering its regulatory framework for cryptocurrency operations. The legislation aims to secure a safer trading environment for virtual asset users and to instill a structured order within the virtual asset market.
Following the enactment, major South Korean cryptocurrency exchanges such as Upbit, Bithumb, Coinone, and Korbit reported sharp declines in trading volumes, indicating immediate market reactions to the new regulations.
Impact on Major Exchanges
Upbit, a leading exchange since its inception in October 2017, saw a 29.4% decrease in trading volume to $1.50 billion. Similarly, Bithumb, established in 2013 and a well-recognized platform globally, experienced a 24.7% reduction to $425.22 million. Coinone and Korbit also faced significant downturns, each noting a 38.4% drop in trading activities.
Regulatory Enhancements and Requirements
The new law mandates several critical practices
- Asset Protection: Virtual asset service providers (VASPs) are required to store customer deposits in segregated bank accounts to prevent fund misappropriation.
- Insurance and Reserve Funds: VASPs must secure insurance against liabilities arising from cyber incidents or establish a reserve fund to cover potential operational failures.
- Monitoring and Reporting: The legislation requires rigorous monitoring of trading activities, with a directive to report any suspicious transactions to the Financial Supervisory Service (FSS) promptly. Non-compliance or manipulative trading practices attract severe financial penalties or criminal prosecution.
- Regulatory Oversight: The Financial Services Commission (FSC) and the FSS are empowered with broader authority to supervise, inspect, and penalize VASPs, enhancing the regulatory oversight of the sector.
Preparatory Measures and Industry Collaboration
In preparation for these regulatory changes, VASPs engaged with financial authorities to ensure full compliance, participating in pilot tests and adopting best practices for operational integrity. The Digital Asset Exchange Alliance (DAXA), along with 20 other service providers, developed guidelines to support industry-wide self-regulation.
These regulatory measures reflect South Korea’s commitment to creating a robust and secure marketplace for crypto assets, aiming to enhance investor confidence and market stability over the long term.
