Markets
South Korea unveils strict new rules for cryptocurrency exchanges
Big news from South Korea! The country has just implemented its first comprehensive regulatory framework for cryptocurrencies, the Virtual Asset User Protection Act (VAUPA). This landmark legislation aims to protect investors in the wake of the Terra-Luna and FTX debacles.
Under the new law, local cryptocurrency exchanges must now keep at least 80% of user deposits in cold wallets, earning interest rates between 1% and 1.5%, separate from their operational funds. In addition, exchanges are required to monitor abnormal trading activities to ensure market stability.
What does this mean for the cryptocurrency market?
Let’s dive into the details!
Understanding the impact: Markets and traders.
VAUPA marks a pioneering step in the fight against unfair business practices and in the implementation of crucial user protection measures. According to a press release from the Financial Supervisory Service (FSS)This is South Korea’s first comprehensive regulation for the virtual asset sector. The law requires exchanges to purchase insurance or set aside reserve funds to prepare for possible hacks or liquidity crises.
To strengthen market integrity, exchanges must now implement real-time monitoring systems to detect and report illegal trading activities. Failure to comply with these rules can result in sanctions or even suspension by the Financial Services Commission (FSC), which has also set up a 24-hour surveillance network to oversee trading.
Kim Hyoung-joong, chairman of the Korea Fintech Society, noted that while VAUPA establishes a solid regulatory framework, there is a need to expand the regulation to cover the issuance of virtual assets and to support the growth of the local crypto industry.
What’s next for South Korean cryptocurrency legislation?
However, South Korea’s Virtual Assets Act, originally planned as a two-part legislation, is now in effect, with lawmakers discussing follow-up regulations. Topics under consideration include regulating token issuers, revising the ban on institutional cryptocurrency investments, and regulating stablecoins. South Korea is home to one of the largest cryptocurrency markets, with the Korean won set to be the most used fiat currency for cryptocurrency trading against the US dollar in the first quarter of 2024.
This move by South Korea could set a global precedent. Traders are advised to proceed with caution and conduct thorough research before investing in high-risk assets!
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