South Korean FSC updates definition of virtual assets and VASP regulations for Virtual Asset User…
The South Korean Financial Services Commission (FSC) on Monday (local time) published a new enforcement decree and supervisory regulations for the Virtual Asset User Protection Act, under which non-fungible tokens (NFTs) and deposit tokens are excluded from the definition of virtual assets. The act serves to protect customer assets, prevent unfair trading practices, and enforce penalties.
“The enforcement decree and supervisory regulations provide detailed standards and methods to safeguard users’ assets and establish stability in the market,” the FSC said.
Defining virtual assets
The agency explained that it decided to exclude NFTs because they are mainly bought and sold for collection purposes, posing low risks to holders and the financial system. However, NFTs that can be used as a means of payment for purchasing certain goods and services are considered virtual assets. On the other hand, deposit tokens — which will be managed by the Bank of Korea’s central bank digital currency network — are regarded as a legitimate form of monetary deposit and are subject to relevant regulations instead of the User Protection Act. Other “electronic certificates of economic value,” such as mobile vouchers and electronic bonds, are also excluded from the definition of virtual assets.
Enhancing security and transparency
Following the clarified definition of virtual assets, the updated regulations underline conduct measures that virtual asset service providers (VASPs) must comply with. For example, VASPs must calculate the total value of their customers’ crypto assets every month and store at least 80% in a cold wallet to prevent infringements like hacks — a boost from the current 70 percent. Cold wallets are deemed more secure than hot wallets because they keep crypto keys offline instead of staying connected to the internet.
VASPs are also not allowed to arbitrarily block deposits and withdrawals of user assets without prior notice and a justifiable reason like internal system failure or hacks as well as requests from courts, investigative bodies, the National Tax Service and financial authorities. User deposits must be stored in banks, which can invest them only in safe assets such as government bonds.
The act is set to take effect on July 19 next year after a legislative review scheduled for next month.
