Crypto Respectability

For the first time since the enactment of the Act on Reporting and Using Specified Financial Transaction Information, a bill related to virtual assets (cryptocurrencies) has passed the National Policy Committee of the National Assembly.

On May 11, the National Policy Committee voted to pass the Virtual Asset User Protection Act, which protects cryptocurrency investors, in a plenary session at the National Assembly’s main building in Yeouido, Seoul. The bill was discussed at the committee’s bill review subcommittee on April 25 and passed by the full committee on May 11.

Committee members agreed to discuss the bill in two phases. The first phase centered on investor protection and the second phase complemented market order regulations such as the issuance and disclosure of virtual assets. It is the first phase that was passed on May 11.

The core of the Virtual Asset User Protection Act is the introduction of regulations to protect users such as protecting customer assets and prohibiting unfair trade.

“According to the act, virtual asset operators must comply with obligations -- maintaining depository trusts for customer deposits, storing the same type and quantity as those of customer virtual assets, purchasing insurance or becoming members of mutual aid societies and securing reserves,” said Representative Kim Jong-min of the Democratic Party who chaired the first subcommittee on the bill.

In particular, with a view to better protecting virtual asset users, it stipulates that the use of key undisclosed information, market price adjustment, and fraudulent transactions are unfair trade acts. If a person violates this stipulation, the person must face not only a criminal penalty but a class action lawsuit and pay damages. The Financial Services Commission can also impose a fine on the person.

The committee members also agreed to explicitly separate central bank digital currencies (CBDCs) from the definition of virtual assets. It was a major bone of contention whether or not to explicitly separate central bank digital currencies (CBDCs) from the definition of virtual assets. This decision aimed to mitigate a confusion that may arise if CBDCs are used for payments.

The act will allow the Bank of Korea (BOK) to have the right to request data from virtual asset service providers (VASPs). This is because the committee members judged that such data may be needed for references in making monetary and credit policies and financial stability policy although they are not currencies.

“As for issues that require further discussion, such as virtual asset issuance and distribution systems, regulations on stable coins (including security tokens and utility tokens), regulations on business behaviors of virtual asset operators, and improvement measures for the Financial Intelligence Unit (FIU) to prevent money laundering risks involving banks, the Financial Services Commission is to prepare improvement measures and report to related standing committees of the National Assembly,” Representative Kim added.

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