In a significant move to bolster investor protection in the wake of several crypto scandals, South Korea has approved its first standalone digital-asset bill. The legislation comes just over a year after the collapse of tokens created by South Korean entrepreneur Do Kwon, which contributed to a $2 trillion crypto-market rout. The new law grants the Financial Services Commission (FSC) the authority to oversee crypto operators and asset custodians while enabling the Bank of Korea to investigate these platforms.
The primary objective of this landmark legislation is to create a safer environment for investors participating in the digital-asset market. The act mandates the implementation of insurance coverage, reserve funds, and comprehensive record-keeping to ensure the financial stability and security of crypto operators. By introducing these regulations, South Korea aims to instill confidence and promote responsible practices within the cryptocurrency industry.
Comprehensive Coverage and Rules for Digital Assets
The newly passed bill in South Korea sets out guidelines that encompass a wide range of digital assets, with a particular focus on popular digital currencies such as Bitcoin. Under the legislation, digital-asset operators are required to obtain insurance coverage, which serves as a protective measure for investors against potential losses due to security breaches or malpractice. Additionally, the legislation mandates the establishment of reserve funds to strengthen the financial resilience of these operators.
Furthermore, the bill emphasizes the importance of record keeping in the digital-asset sector. Comprehensive and transparent record-keeping practices will enable regulatory authorities to monitor the activities of crypto operators more effectively and ensure compliance with the law. By extending the existing capital-markets law to cover tokens deemed securities, South Korea aims to address potential loopholes and provide a more robust regulatory framework for the entire spectrum of digital assets.
Recent Scandals Prompted Urgency for Crypto Regulation
The approval of the standalone crypto bill in South Korea was prompted by a series of scandals that exposed the risks inherent in the digital-asset sector. Notably, the collapse of Do Kwon’s TerraUSD and Luna coins resulted in losses exceeding $40 billion, leading to international arrest warrants for Kwon. The new legislation aims to prevent similar incidents by implementing stringent regulations and enhancing oversight mechanisms.
The urgency for stricter digital currency regulations was further emphasized when two crypto lenders with links to South Korea suspended withdrawals consecutively in June. These incidents served as a stark reminder of the potential risks and vulnerabilities associated with the digital asset industry. Moreover, a high-profile murder case in Seoul, connected to losses incurred through crypto investments, heightened public concern and put pressure on policymakers to expedite the introduction of new rules.
Conclusion
South Korea’s approval of its inaugural standalone digital-asset bill represents a crucial step towards strengthening investor protection and establishing a comprehensive regulatory framework in the crypto sector. The legislation grants regulatory authorities greater oversight and enforcement powers, ensuring that crypto operators and asset custodians adhere to stringent guidelines.
By mandating insurance coverage, reserve funds, and enhanced record-keeping practices, the new law aims to mitigate risks and foster investor confidence in the digital asset market. The regulations cover a broad range of assets, including popular cryptocurrencies like Bitcoin, while also addressing tokens classified as securities.
