South Korea - Act to Regulate Cryptocurrency Markets The Library of Congress analyzes South Korea's comprehensive cryptocurrency regulation, examining user protection requirements and enforcement mechanisms for virtual asset service providers.
July 2024
Source: Library of Congress - Global Legal Monitor

What Does the Library of Congress Analysis Cover?

The Library of Congress Global Legal Monitor provides an authoritative analysis of South Korea's cryptocurrency market regulation. The analysis examines the legislative background, key provisions, and expected impact of the Virtual Asset User Protection Act.

What Is the Legislative Background?

Market Context

  • South Korea among world's largest crypto markets
  • History of significant exchange failures and fraud
  • Strong retail investor participation
  • Previous regulatory gaps identified

Legislative History

  • Multiple bills proposed since 2020
  • Bipartisan support for user protection measures
  • Final passage in 2023, effective July 2024
  • First dedicated crypto legislation in Korea

What Are the Key Provisions?

Definition and Scope

  • Defines "virtual assets" broadly
  • Covers exchange, custody, and brokerage services
  • Excludes CBDCs and certain utility tokens
  • Applies to domestic and foreign-serving platforms

User Protection Measures

  • Mandatory asset segregation
  • Insurance requirements for operational risks
  • Cold storage mandates (80% minimum)
  • Prohibition on unauthorized asset use

Market Integrity

  • Market manipulation prohibitions
  • Insider trading restrictions
  • Unfair trading practice enforcement
  • Information disclosure requirements

How Is the Act Enforced?

Regulatory Authority

  • Financial Services Commission primary oversight
  • Financial Supervisory Service for examination
  • Prosecution authority for criminal violations
  • Civil penalty mechanisms

Penalties

  • Criminal penalties for serious violations
  • Administrative fines for lesser infractions
  • License suspension or revocation
  • Personal liability for executives

What Is the Expected Impact?

Market Effects

  • Industry consolidation expected
  • Smaller exchanges may exit market
  • Compliance costs increase barriers to entry
  • User confidence potentially improved

International Context

  • Aligns with FATF recommendations
  • Comparable to major jurisdictions' approaches
  • May influence regional regulatory development
  • Cross-border coordination provisions

What Should Financial Institutions Consider?

  • Korean market size justifies compliance investment
  • User protection focus shapes product offerings
  • Bank partnership requirements create collaboration opportunities
  • Stablecoin-specific rules to follow
  • Local expertise essential for market entry

The Coinbax Perspective

The Library of Congress analysis provides valuable context for understanding Korea's regulatory approach. The emphasis on user protection reflects lessons from high-profile failures in the Korean market and broader Asian crypto sector.

For financial institutions, the takeaway is that Korea's regulatory environment is maturing rapidly. The combination of strict user protection requirements and upcoming stablecoin legislation will shape what's possible in one of the world's largest crypto markets.

Frequently Asked Questions

Why did Korea enact this legislation?

Korea experienced significant exchange failures and fraud cases affecting retail investors. The legislation responds to these problems by mandating asset segregation, insurance, and market conduct rules.

How does this compare to other countries?

Korea's approach is among the most user-protection-focused globally, with strict cold storage and insurance requirements. It aligns with FATF standards while going further on consumer protection.