South Korea’s Financial Supervisory Service plans to strengthen regulations for digital assets, aiming to address shortcomings in the Virtual Asset Users Protection Act, set to be finalized in January 2024.
- South Korea’s Financial Supervisory Service (FSS) is working on additional regulations to strengthen the Virtual Asset Users Protection Act.
- These regulations are expected to be finalized by January and will coincide with the law’s enforcement.
- The FSS plans to establish criteria for listing processes, internal controls, and the issuance and distribution of virtual assets.
- A collaborative virtual-asset crime investigation unit, the Joint Investigation Centre for Crypto Crimes, is being formed to combat illicit activities in the virtual asset space.
In June, South Korea introduced the Virtual Asset Users Protection Act, a significant step in regulating the digital asset space. However, concerns were raised by the chief of South Korea’s Financial Supervisory Service (FSS) regarding the lack of regulatory framework supporting the new law.
To address these concerns, the FSS is actively working on supplementary regulations to fortify the Virtual Asset Users Protection Act, which was ratified earlier in 2023.
Crypto & Digital ?
According to local reports, these new regulations are expected to be finalized by January 2024 and will come into effect concurrently with the enforcement of the law.
Lee Bok-hyeon, the head of FSS, revealed the agency’s commitment to strengthening the regulation, stating that the aim is to provide a comprehensive framework for digital assets in South Korea.
On October 17, the Political Affairs Committee of the South Korean National Assembly held a hearing to scrutinize the FSS’s efforts.
During this session, Lee Bok-hyeon responded to criticisms related to the risks associated with foreign-issued cryptocurrencies commonly referred to as “burger coins” within South Korea. The FSS is now working to institute criteria for listing processes, internal controls, and the issuance and distribution of virtual assets.
South Korean press coverage of the audit also revealed plans for the establishment of a “virtual asset market supervision and inspection system.”
Notably, the FSS is actively consulting with the Digital Asset eXchange Association (DAXA), which represents local crypto exchanges Upbit, Bithumb, Coinone, Korbit, and Gopax in these discussions.
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Lee Bok-hyeon expressed dissatisfaction with the legislation passed in June, stating that it lacked the necessary regulatory granularity. While the law did impose criminal liability for infractions, it did not provide sufficient authority to the FSS.
Lee emphasized the need for collaboration with DAXA, especially in cases involving manipulation of distribution volume through staking or unfair disclosure. He stated:
“There are established systems in the securities sector for diverse screenings linked to the issuance market, but analogous systems are absent at DAXA or individual exchanges.”
To bridge this regulatory gap, South Korean law enforcement authorities are planning to establish a Joint Investigation Centre for Crypto Crimes. This collaborative unit will comprise 30 staff members drawn from various government agencies, including the FSS, National Tax Service, Korea Customs Service, among others. Its primary objective is to combat illicit activities within the virtual asset space.
The proactive approach of South Korea’s FSS in enhancing digital asset regulations reflects the growing importance of the crypto industry in the country.
By collaborating with local exchanges and addressing regulatory gaps, South Korea aims to create a more secure and transparent environment for both investors and businesses operating in the digital asset space.
The formation of the Joint Investigation Centre for Crypto Crimes is a significant step toward combating illicit activities, which will likely boost confidence in the sector. We will continue to monitor these developments closely as they unfold.