[Virtual Asset User Protection Act Enforcement] Upbit, Bithumb, and Domestic Exchanges Delisting Kimchi Coins? (Bitcoin/Ethereum/NFT)

Hello, this is SEPOWER!

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The rain that had been pouring down in the metropolitan area seems to have subsided for a while.

Is the coin market following the weather? It seems to be taking a breather for a moment.

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It seems there's still a long way to go before investor sentiment recovers ㅜㅜ

Recently, we introduced the virtual asset tax deferral and the Financial Investment Securities Transaction Tax (FITS).

Starting today, the Virtual Asset User Protection Act comes into effect.

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It was enacted on July 18, 2023, and finally, on July 19, 2024, today, it is being implemented. Let's discuss what impact it will have on the virtual asset market!

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[ Republic of Korea, Virtual Asset User Protection Act in effect from July 19th ]

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◎ Regarding Coin Listing

Listing maintenance reviews, etc., will be introduced after the Virtual Asset User Protection Act.

Currently, DAXA (Digital Asset Exchange Association) is leading the development of listing and delisting regulations, but these are self-regulatory guidelines.

The Financial Supervisory Service (FSS) is expected to provide guidelines.

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It seems that exchange listings will become more stringent. It's necessary to examine the coins that will be listed in the future.

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◎ Regarding the Regulation of Market Makers (MMs)

While the Capital Markets Act exempts market-making activities, the Virtual Asset User Protection Act does not include any exceptions, thus considering it as market manipulation.

-> MMs may become hesitant, leading to reduced liquidity.

-> Reduced liquidity could lead to meeting delisting criteria.

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◎ Are NFTs (Non-Fungible Tokens) also virtual assets?

NFTs can be classified as either securities, NFTs, or virtual assets.

If only issued as an NFT, it has a higher probability of being considered a security.

The key lies in whether it constitutes an investment contract security.

The typical NFTs that we know fall under the category of virtual assets.

If trading is infrequent, it can be considered an NFT.

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◎ Getting Refunds in Case of Domestic Exchange Bankruptcy

Now, exchanges are required to entrust funds to institutions like banks, enabling users to receive refunds.

However, coins are not entrusted, so this part is case-by-case.

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◎ Beware of Using Private Virtual Asset Exchanges as They Are Illegal

◎ The Law is Still Vague, so Further Information is Needed

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Full Text of the Virtual Asset User Protection Act

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[Press Release] The "Virtual Asset User Protection Act" will be enforced starting tomorrow (July 19th).
The "Virtual Asset User Protection Act" will be enforced starting tomorrow (July 19th). < Main Contents of the "Virtual Asset User Protection Act" > ➊ Securely protect users' deposits and virtual assets ➋ Establish investigation and punishment grounds for unfair trading practices in the virtual asset market, such as price manipulation ➌ Define the authority of the financial authorities to supervise, inspect, and sanction virtual asset businesses [Background of the Enactment of the "Virtual Asset User Protection Act"] The "Virtual Asset User Protection Act", which was enacted to establish a sound order in the virtual asset market and protect virtual asset users, will be enforced starting tomorrow (July 19th). In March 2021, the "Specific Financial Information Act" was amended to introduce a reporting system for virtual asset businesses and various regulatory measures were put in place to prevent money laundering, such as the Travel Rule. However, with a regulatory framework focused on anti-money laundering, it was difficult to actively respond to various unfair trading practices such as market manipulation, and there were continuous criticisms that there were some limitations in securely protecting users' assets. Therefore, considering the importance and urgency of user protection, 19 pending bills related to virtual assets in the National Assembly were integrated and adjusted focusing on essential matters for user protection, and an alternative was prepared. After in-depth discussions, the "Virtual Asset User Protection Act" was enacted on July 18, 2023. Following this, the enactment of subordinate regulations such as enforcement decrees, and preparation for the enforcement of the Act by virtual asset businesses, took place over a one-year preparation period, and the "Virtual Asset User Protection Act" will be enforced starting tomorrow (July 19th).

www.fsc.go.kr

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[Background of the Enactment of the "Virtual Asset User Protection Act"]

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The "Virtual Asset User Protection Act", enacted to establish a sound order in the virtual asset market and protect virtual asset users, will be enforced starting tomorrow (July 19th).

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In March 2021, the "Specific Financial Information Act" was amended to introduce a reporting system for virtual asset businesses, and various regulatory measures were put in place to prevent money laundering, such as the Travel Rule. However, with a regulatory framework focused on anti-money laundering, it was difficult to actively respond to various unfair trading practices such as market manipulation, and there were continuous criticisms that there were some limitations in securely protecting users' assets.

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Therefore, considering the importance and urgency of user protection, 19 pending bills related to virtual assets in the National Assembly were integrated and adjusted focusing on essential matters for user protection, and an alternative was prepared. After in-depth discussions, the "Virtual Asset User Protection Act" was enacted on July 18, 2023. Following this, the enactment of subordinate regulations such as enforcement decrees, and preparation for the enforcement of the Act by virtual asset businesses, took place over a one-year preparation period, and the "Virtual Asset User Protection Act" will be enforced starting tomorrow (July 19th).

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[Main Contents of the "Virtual Asset User Protection Act" and Subordinate Regulations]

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The "Virtual Asset User Protection Act" stipulates △protection of users' deposits and virtual assets, △regulation of unfair trading practices such as market manipulation, and △supervisory, inspection, and sanctioning authority of the financial authorities over virtual asset businesses, as well as the investigation and action authority over unfair trading practice perpetrators.

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First, users' deposits will be safely stored and managed by a credible custodian such as a bank, and virtual asset businesses must pay users a deposit usage fee that has the nature of interest on the deposit. Virtual asset businesses must keep users' virtual assets separate from their own virtual assets, and must actually hold virtual assets of the same kind and quantity as the users' virtual assets. Virtual asset businesses must subscribe to insurance or set aside reserve funds to fulfill their liabilities arising from accidents such as hacking or system failures.

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A regulatory framework for unfair trading practices such as market manipulation is also being introduced. Virtual asset exchanges must continuously monitor suspicious transactions, and if they suspect unfair trading practices, they must take measures such as reporting to the financial authorities.* Following this, the financial authorities will investigate the suspected case and, through investigation by the investigative authorities, those who have engaged in unfair trading practices can be subject to criminal punishment and imposition of fines.**

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The Financial Supervisory Service (FSS) and virtual asset exchanges have established "Guidelines for Continuous Monitoring of Suspicious Transactions" (July 5th) so that the market monitoring system of virtual asset exchanges can function smoothly.

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** (Criminal Punishment) Imprisonment for 1 year or more or a fine equivalent to 3 to 5 times the amount of unjust gains

(Unjust Gains of 500 million won or less: Imprisonment for 3 years or more, Unjust Gains of 5 billion won or more: Imprisonment for 5 years or more or life imprisonment)

(Fines) An amount equivalent to twice the unjust gains. If unjust gains cannot be calculated, a fine of 4 billion won or less

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Furthermore, with the enforcement of the "Virtual Asset User Protection Act", the financial authorities will be able to supervise, inspect, and sanction virtual asset businesses. The Financial Supervisory Service (FSS) will inspect virtual asset businesses to verify their compliance with user protection obligations under the "Virtual Asset User Protection Act", and the Financial Services Commission (FSC) can impose sanctions on virtual asset businesses that violate their obligations based on the inspection results, such as corrective orders, suspension of all or part of their business, and imposition of administrative fines.

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[Preparation for the Enforcement of the "Virtual Asset User Protection Act"]

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The financial authorities have been preparing to ensure that this new system is smoothly established and implemented without any problems. The Financial Services Commission (FSC) has enacted an enforcement decree (approved by the Cabinet Meeting on June 25th) that specifies the details delegated by the Act, as well as supervisory regulations and investigation operational regulations (approved by the FSC on July 10th).

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The Financial Supervisory Service (FSS) provided a roadmap for implementing the Act to virtual asset businesses in February this year and conducted on-site consultations for interested businesses. Starting in June, a pilot test of the regulations was conducted to conduct a final check of the preparedness of the financial authorities and virtual asset businesses. Mandatory insurance products covering accidents such as hacking and system failures have also been launched in time for the implementation of the Act. In addition, 20 virtual asset exchanges and DAXA (Digital Asset Exchange Association) have established "Best Practices for Virtual Asset Trading Support" as part of self-regulation, which will be implemented along with the "Virtual Asset User Protection Act". These best practices set out minimum standards that virtual asset exchanges must jointly comply with when reviewing virtual asset trading support, and require the provision of essential information to users, including the original text of the virtual asset white paper and Korean-language materials on the main contents.

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[Expected Effects]

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With the enforcement of the "Virtual Asset User Protection Act", it is expected that a basic safety net will be established to securely protect virtual asset users. Also, strong penalties will be possible for unfair trading practices that disrupt the order of the virtual asset market, which will contribute to establishing market order. Going forward, we will strengthen cooperation with related agencies such as investigative agencies to ensure the effective operation of the "Virtual Asset User Protection Act", and if any shortcomings are found after the implementation of the system, we plan to actively supplement them.

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[Matters for User Caution]

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However, virtual asset users should be aware that the "Virtual Asset User Protection Act" does not guarantee the safety of virtual assets and should carefully consider their investment decisions, taking into account the high risk and volatility of virtual assets, and taking independent steps to collect and verify information related to virtual assets. In addition, transactions through unidentified businesses that are not registered with the Financial Intelligence Unit (FIU)*, and over-the-counter transactions such as peer-to-peer (P2P) transactions are prone to damage due to a lack of proper market monitoring, so caution is necessary.

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'The Virtual Asset User Protection Act should also clearly inform the public about its standards.'

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Sepower Community Contact ↓

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