South Korea’s National Assembly on Friday approved a bill that focuses on protecting the interests of cryptocurrency investors in the country’s first step to build a legal framework devoted to such digital assets, according to the Assembly’s official website. The legislation, which translates as the Virtual Asset User Protection Act, is expected to come into law in a year.
- The bill, an amalgamation of 19 proposals from lawmakers, requires crypto service providers to ring-fence user’s assets and deposits, to have insurance, to hold a portion of reserves in offline cold wallets in case of hacks or system failures, and to maintain records of all transactions.
- The legislation includes penalties for price manipulation, false promotion of crypto assets, and failing to provide required information on investors. Penalties for those convicted include a minimum of one year in prison, or a fine of three to five times the amount of profits earned from such violations.
- The bill defines “virtual assets” as an “electronic representation of an economic value that can be traded or transferred electronically.” The bill excludes the central bank digital currency (CBDC) under the Bank of Korea, the country’s central bank.
- The legislation, however, does give the Bank of Korea the right to request data from cryptocurrency platforms, a right it had been arguing for with the country’s financial regulators. The bank has stated the cryptocurrency market could have a significant impact on financial and monetary stability and hence it needs some oversight.
- In an interview with Forkast in May, Hwang Suk-jin, a Ruling People Power Party’s Digital Asset Special Committee member said the proposed bill will establish the legal rights for virtual asset users and create a safer and more reliable market for cryptocurrencies.
- As of 2020, South Korea had one of the most active cryptocurrency economies in the world, ranking 7th worldwide on the Global Crypto Adoption Index compiled by blockchain data platform Chainalysis.
- However, the country fell to 23 on the index in 2022, the same year as the US$40 billion collapse of the Terra-Luna cryptocurrency and stablecoin that was launched in the country and caused massive losses to hundreds of thousands of investors. Regardless, the Upbit crypto exchange in South Korea remains the world’s third largest by trading volume, according to CoinMarketCap data.
- The Terra-Luna debacle helped drive legislation in South Korea to establish a legal framework to cover cryptocurrencies, focusing first on investor protection. The next stage of crypto legislation is expected to focus on rules for local companies in token issuance and information disclosure.