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Starting in the second half of this year, crimes related to digital assets such as price manipulation, insider trading and unfair trading practices will be prohibited, as the country’s first law on protecting digital asset investors will take effect on July 19. Individuals involved in such illegalities can face a maximum penalty of life imprisonment, if they are found guilty of pocketing a wrongful gain of over 5 billion won ($3.7 million).
Under the new law, virtual asset business operators are also required to maintain a reserve of more than 80 percent of investors’ assets and deposits to secure the stability and safety of cryptocurrency investors.
This is according to the Financial Services Commission (FSC), the country’s top financial regulator. The FSC announced on Wednesday that it had completed the preliminary legislative notice from December last year until late last month on the virtual asset user protection law as well as its related enforcement decrees.
Preparing for the implementation of the law in July, the financial authority said that it is currently setting up infrastructure for supervisory, inspection and investigation tasks as stated in the law.
“The FSC has been working on to establish a supervisory and inspection system as well as related infrastructure to ensure swift market monitoring and investigation of unfair trading practices,” the FSC said.
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The law on protecting cryptocurrency investors is Korea’s first legislation that passed the National Assembly late last June, with the act slated to take effect after a period of one year, which falls in July this year.
The law prohibits the use of undisclosed important information, price manipulation and fraudulent transactions related to virtual assets, with criminal penalties or fines being imposed for violations. In case of criminal penalties, those found guilty can face imprisonment for more than one year, or fines up to five times their ill-gotten profit amount. The maximum penalty can be a life sentence, when the illegal profit amount exceeds 5 billion won.
Besides the tough penalties stipulated in the law, its purpose is first and foremost to ensure that virtual asset service providers are operated safely and soundly, protecting investors’ digital assets and deposits.
Thus, the law’s enforcement states that digital asset business operators are obligated to manage investors’ deposits at banks only, aiming to guarantee stability in keeping investors’ assets. Additionally, virtual asset service providers are required to have a reserve of over 80 percent of the economic value of the virtual assets held by investors.
The law also grants the FSC the authority to supervise and inspect virtual asset service providers and to investigate and take action against unfair trading practices. The law’s enforcement decrees state that the inspection tasks are to be carried out by the Financial Supervisory Service (FSS), the state-led financial watchdog agency.
When violations of the law are found to have occurred, the FSC can suspend the business operations of digital asset service providers, issue corrective orders or send the case to other law enforcement agencies for further investigation.
Financial Supervisory Service (FSS) Governor Lee Bok-hyun, fourth from right in front row, sits with the CEOs of virtual asset service providers at FRONT 1 in Seoul, Wednesday. Courtesy of FSS
FSS Governor Lee Bok-hyun met with 20 CEOs of virtual asset service providers, including chiefs of Dunamu and Hanbitco, on Wednesday afternoon, urging them to thoroughly prepare for the upcoming implementation of the law and to put their utmost efforts into protecting investors’ assets.
Lee also stressed the need for the heightened awareness by business operators so that unfair and unethical practices, such as listing bribes, price manipulation and manipulation of trading volume, which ultimately hurt trust in the market and undermine the cryptocurrency industry can be minimized.