The South Korean government has given its approval to a decree regarding the implementation of the Act on the Protection of Virtual Asset Users (PVAU). Both the decree and the act will be enforced simultaneously on July 19th.
The Enforcement Decree outlines the methods and procedures that will be followed by the Financial Services Commission (FSC) to ensure the effectiveness of the PVAU. These procedures include both proactive measures and oversight of actions carried out in accordance with the PVAU.
To guarantee the protection of virtual asset users, the FSC will establish a committee consisting of government officials and experts from the private sector. This committee will develop a policy for virtual assets that are regulated under laws other than the PVAU, or those that are considered to have no negative impact on users.
Furthermore, the FSC will designate credible financial institutions that are eligible to manage customer deposits made to virtual asset service providers (VASPs). Customer funds must be kept separate from VASP funds and invested in “risk-free” assets under an agreement with the VASP, in order to generate a yield. In the event that a VASP is deregistered or goes bankrupt, the bank must directly return the customers’ money to them.
The FSC will also determine the percentage of VASP customer digital assets that must be stored in cold wallets, with a minimum requirement of 80%. In specific circumstances, VASPs may impose limitations on deposits and withdrawals. There are also regulations in place for reporting abnormal trading activities, with severe punishments, including life imprisonment, for violating these rules. Additionally, complex guidelines exist to differentiate between public and non-public information.
South Korea has significantly intensified its enforcement actions related to cryptocurrencies over the past year. The PVAU was enacted in July 2023, but faced criticism for lacking a regulatory framework.
The introduction of Bitcoin (BTC) exchange-traded funds (ETFs) in the United States caused controversy surrounding this asset product in South Korea. The FSC advised local brokerages to avoid investing in US funds, but the office of the president voiced opposition to this policy. The leading party in the new government has also urged the FSC to reconsider its stance on BTC ETFs.
The Enforcement Decree will be officially announced in early July.