South Korea is set to implement a new law that aims to protect users of virtual assets from market manipulations and unfair trading practices. The Virtual Asset User Protection Act, which was approved by the National Assembly, connects 19 crypto-related bills into a single comprehensive law. This new legislation gives a clear definition of digital assets and specifies penalties for illicit trading activities. These activities could range from the use of undisclosed information and market manipulation to other forms of unfair trading practices.

The new law requires all South Korean Virtual Asset Service Providers (VASPs) to offer insurance for all user deposits. This requirement was designed to strengthen user protection against threats like hacks, computer failure, and other associated risks. The law also establishes the basis for holding accountable those involved in illicit crypto-asset transactions. Once the law is fully implemented, individuals can be held accountable for unauthorized use of undisclosed information, market manipulation, and illicit transactions, imposing damages and fines.

The Financial Services Commission (FSC) has the authority to supervise and inspect digital asset operators, and a Virtual Asset Council can be established to provide advisory services. The legislation defines the scope of virtual assets subject to the law and requires virtual asset service providers (VASPs) to safely manage and store their customers’ deposits and virtual assets. It also provides statutory grounds for sanctions, including criminal penalties and fines, to punish unfair trading activities using virtual assets.

The new law aims to apply the Capital Market Act to virtual assets that have securities-like characteristics. Furthermore, it aims to lay the groundwork for imposing penalties and assuming liability for damages deriving from unfair cryptocurrency trading. The legislation establishes standards for insurance, mutual aid subscriptions, and reserve accumulation within the virtual asset sector. These measures are intended to create a safety net for users and ensure that they are protected in case of unexpected events or losses in the virtual asset market.

The Virtual Asset User Protection Act is scheduled to take effect on July 19, 2024. The Financial Services Commission (FSC) proposed detailed rules under the Act, which specifies more types of tokens not covered by the Act. Under the Act, virtual assets are defined as electronic tokens with economic value which can be traded or transferred electronically. The Act excludes game money, electronic money, electronic stocks, electronic bills, electronic B/L, and central bank digital currency (CBDC) from the coverage of the law.