South Korean lawmakers have passed a new law to protect investors from the inherent risks associated with trading digital currencies amid attempts to weed out bad actors from the ecosystem.
The law on the protection of users of virtual assets was adopted on June 30 after going through the legislative procedure in the National Assembly. A central theme of the new law is the classification of digital assets as securities, a move that will bring the industry within the scope of existing capital markets laws.
Under these provisions, the primary regulator of digital asset service providers in South Korea will be the Financial Services Commission (FSC). After heated legislative haggling, it was decided that the FSC would share supervisory powers with the Bank of Korea (BoK), given the asset class's potential to disrupt financial stability.
The new law requires industry service providers to follow proper corporate governance procedures and take preventative measures to prevent black swan events like security breaches. Operators must also have a strong insurance policy, avoid mixing customer funds, and make necessary disclosures to regulators.
Despite the safeguards put in place by the new law, experts have punched holes in the legislation as being a reiteration of existing decades-old financial rules.
“The law, in general, remains stuck in the perspective of traditional finance in terms of crypto regulation,” said Korea Blockchain Enterprise Promotion Association executive Lee Suh Ryoung.
A community reading of the bill points to stiff penalties for violators, combining jail time and fines. The bill provides for a prison sentence of at least one year for violating provisions against price manipulation and other unfair trade practices.
The law also empowers the FSC to impose fines of twice the amount obtained through unfair acts following an amendment to the Capital Markets Act. In cases where investigators cannot calculate the amount of profit resulting from price manipulation, the law provides for a fixed fine of KRW 4 billion ($3 million).
Still haunted by the specter of Terra
South Korea's new law stems from the government's desire to avoid a repeat of the Terra implosion that wiped out the fortunes of digital asset investors in the country.
Since Terra's collapse, South Korean authorities have filed criminal charges against Terraform Lab executives, resulting in the seizure of more than $200 million in assets.
The country is currently in a rush with the United States to extradite embattled Terraform Labs founder Do Kwon, claiming he has tons of evidence to put Kwon behind bars for 40 years.
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