The South Korean National Assembly passed the Virtual Asset User Protection Act on June 30 during a plenary session, 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 primarily focuses on investor protection amid a spate of crypto-related scandals in the country over the past year.
New rules
The bills create rules related to preventing and punishing illicit financial activity, as well as market manipulation and insider trading using nonpublic information.
Under the rules, transgressors will face fines ranging from a minimum of 2x the amount of profit made from unfair trade practices and a fixed-term prison sentence of at least one year.
The legislation also establishes rules to bring crypto-related firms under the financial services regulatory umbrella by imposing minimum capital requirements in the form of reserve funds, insurance for customer deposits, and keep records of all virtual assets in their custody.
Additionally, the legislation gives the country’s Financial Services Commission and central bank powers to supervise and probe crypto platforms and companies.
Korea Blockchain Enterprise Promotion Association’s chief secretary general Lee Suh Ryoung told Bloomberg News that the new rules are a step in the right direction but applying rules created for traditional finance to digital assets is not the right approach.
Scandals
The new rules are expected to quell 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 contended with multiple scandals involving crypto that further exacerbated the need for strict rules 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 a high-profile lawmaker’s crypto holdings over allegations of conflict of interest and found a considerable amount of a now de-listed cryptocurrency called WEMIX.
The official was involved in a bill related to removing the tax on virtual assets. The investigation has yet to conclude.
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