The South Korean National Assembly passed the Virtual Asset User Protection Act at a plenary session on June 30, local media SBS reported.
The legislation combines 19 different crypto-related bills that aim to establish a regulatory framework for the industry and define digital assets that are securities.
However, it mainly focuses on investor protection amid a spate of crypto-related scandals in the country over the past year.
New rules
The bills create rules regarding the prevention and punishment of illegal financial activities, as well as market manipulation and insider trading using non-public information.
Under the rules, violators will face fines ranging from a minimum of 2x the amount of profits made from unfair trading practices and imprisonment for at least one year.
The legislation also establishes rules to bring crypto-related companies under the umbrella of financial services companies by imposing minimum capital requirements in the form of reserve funds, insurance for customer deposits, and keeping track of all virtual assets they hold in custody.
In addition, the legislation gives the Financial Services Commission and the country’s central bank powers to monitor and investigate crypto platforms and companies.
Lee Suh Ryoung, chief secretary general of the Korea Blockchain Enterprise Promotion Association, told Bloomberg News that the new rules are a step in the right direction, but that applying rules created for traditional finance to digital assets.
scandals
The new rules are expected to quash some of the public backlash the government has faced since the collapse of Terra LUNA, which prosecutors claim is the largest financial fraud ever committed in the country.
South Korea has faced multiple scandals related to crypto that have further exacerbated the need for strict regulations for the industry.
In May, South Korean prosecutors indicted Coinone executives over allegations of market manipulation and paid listing of tokens.
The same month, prosecutors opened an investigation into the crypto holdings of a high-profile lawmaker over allegations of a conflict of interest and found a significant amount of a now delisted cryptocurrency called WEMIX.
The official was involved in a bill related to abolishing the tax on virtual assets. The investigation has yet to be completed.
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