South Korea Reveals Tough New Rules for Crypto Exchanges: What You Should Know

Big news from South Korea! The country has just rolled out its first comprehensive crypto regulatory framework, the Virtual Asset User Protection Act (VAUPA). This landmark legislation aims to protect investors in the wake of the Terra-Luna and FTX debacles.

Under this new law, local crypto exchanges must now keep at least 80% of user deposits in cold wallets, earning interest rates between 1% and 1.5%, separate from their operational funds. Additionally, exchanges are required to monitor for abnormal trading activities to ensure market stability.

What does this mean for the crypto market?

Let’s delve into the details!

Understanding the Impact: Markets and Traders. 

The VAUPA marks a pioneering step in addressing unfair trading practices and instituting crucial user protection measures. According to a press release from the Financial Supervisory Service (FSS), this is South Korea’s first all-encompassing regulation for the virtual asset sector. The act mandates that exchanges either secure insurance or establish reserve funds to prepare for potential hacks or liquidity crises.

To boost market integrity, exchanges must now implement real-time monitoring systems to detect and report illegal trading activities. Failure to comply could lead to penalties or even suspension by the Financial Services Commission (FSC), which has also set up a 24-hour surveillance network to oversee operations.

Kim Hyoung-joong, president of the Korea Fintech Society, noted that while the VAUPA establishes a robust regulatory framework, there is a need to extend regulations to cover virtual asset issuance and to support the growth of the local crypto industry.

What’s Next for South Korean Crypto Legislation?

However, South Korea’s virtual asset law, initially planned as a two-part legislation, is now in effect, with lawmakers discussing follow-up regulations. Topics under consideration include regulating token issuers, reviewing the ban on institutional crypto investments, and stablecoin regulations. South Korea hosts one of the largest cryptocurrency markets, with the Korean won being the most-used fiat currency for crypto trading over the U.S. dollar in the first quarter of 2024. 

This move by South Korea could set a global precedent. Traders are advised to proceed with caution and conduct thorough research before investing in high-risk assets!

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