South Korea Faces New Crypto Rules: What to Expect

South Korea’s one-year grace period for the Virtual Asset User Protection Act will end this month. With the end of this window period, two important developments are set to change crypto regulations as the country’s citizens know them.

As the country’s regulatory climate tightens this month, the crypto market’s recovery may falter amid reduced trading volumes.

Crypto Regulation Shakeup: New Laws in South Korea

South Korea’s lawmakers passed the Virtual Asset User Protection Act in July 2023, allowing a one-year grace period before implementation. Local media reported that the legislation will be split into two parts, with the first on July 19. The second part remains a work in progress.

Under this legislation, the Financial Services Commission (FSC), South Korea’s regulatory body, and the Bank of Korea will jointly oversee crypto operators and asset custodians in the country. According to an official statement from the FSC, the objective is to prevent illegal market activities.

Crypto exchanges will also need to protect at least 80% of deposits in cold storage and enroll in insurance programs. These measures will guarantee the safety of user funds, with a capacity for compensation in case of security breaches.

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As the one-year period expires this month, South Korea is meeting the expiration of this grace period with new technology. In a Thursday announcement, South Korea’s Financial Supervisory Service (FSS) said it will introduce a 24-hour supervision system for local exchanges on July 19. The rollout will take place as the Act on the Protection of Virtual Asset Users is implemented.

The Financial Supervisory Service (FSS) has developed a standardized reporting format by measuring the Korea Exchange. This system analyzes data submissions from local exchanges, identifies and removes irregularities from transaction reports.

“We have standardized KRX’s (Korea Exchange) criteria in extracting abnormal transactions and prepared models and metric indicators through various simulations, which we expect will carefully filter out abnormal transactions,” said an excerpt from a press release shared on Thursday.

In particular, the FSS uses the help of exchanges, which will monitor suspicious transactions and uncover illegalities. There is also a hotline between local exchanges and the FSS to report violations.

Implications for Crypto as Exchanges Increase

Meanwhile, exchanges increased their activity to beat the July 19 window. Bithumb, the second largest exchange in South Korea, launched the ICP Korean Won trading market on June 12. Others are revaluing more than 1,000 previously listed tokens, with the Digital Asset eXchange Alliance (DAXA) informing local users of plans to join 20 other local exchanges. in the review of 1,333 tokens.

The DAXA is an alliance representing five major Korean crypto exchanges. This will help prevent possible delisting once the Virtual Asset Users Protection Act falls.

These regulatory adjustments stemmed from the TerraUSD and Luna saga in 2022, which revolved around the South Korean national Do Kwon.

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As crypto markets continue to boom, some say tightening regulations in South Korea could slow price recovery. The speculation stems from the Korean won’s position against the US dollar (USD) as the most used currency for crypto trading.

While this competition solidifies South Korea’s position in the global crypto arena, it qualifies as a factor in the long-awaited market recovery as the country’s regulatory climate heats up. As traders and exchanges navigate this development, trading volumes are expected to drop, particularly among major trading platforms, making the market more susceptible to sharp price movements and increased volatility.