Months after the enactment of the Virtual Asset User Protection Act, South Korean regulators are addressing the absence of a framework to guide the implementation of the law.
The country’s Financial Supervisory Service (FSS) says it will deploy resources to roll out a new regulatory framework to support the Act before it comes into effect. FSS head Lee Bok-Hyeon disclosed to Parliament that the framework will be launched before July 2024 and will pay special attention to the intricacies of the local digital currency ecosystem.
While the Act imposes criminal liabilities on industry operators, analysts argue that its provisions did not confer robust enforcement powers on regulatory agencies.
The incoming regulations will make provisions for issuing, listing, and distributing digital currencies. Most importantly, the FSS will push for establishing a “supervision and inspection system” of digital currency service providers to protect investors.
The FSS says it will not be rolling out the legislation on its own but will interface with DAXA, a self-regulating entity comprising the largest exchanges in the country.
“If there is truly an act that amounts to manipulation of distribution volume through staking or unfair disclosure, we will consult with DAXA,” Lee said. “There are related systems in place in the securities sector for various screenings related to the issuance market, but there are no related systems in place at DAXA or individual exchanges.”
Lee’s statements follow a probe into the operations of the FSS by the South Korean National Assembly Political Affairs Committee and subsequent criticisms that residents were bleeding funds from investing in “Burger Coins”—digital currencies issued abroad but tradable in South Korea.
“Domestic investors are suffering massive losses as domestic virtual asset exchanges have listed Burger Coins in droves and allowed the prices to fall thereafter,” said Min Byeong-deok of the Democratic Party of Korea.
The FSS chief has vowed to protect investors from losses from investing in “Burger Coins” using the proposed regulatory framework. South Korea’s frantic rush for legislation protecting investors stems from the catastrophic collapse of Terra, triggering losses running into billions of dollars.
A wave of regulatory activity in South Korea
Since Terra‘s collapse, South Korean authorities have swooped into action with a barrage of regulations to stamp out bad actors from the sector. The rules, primarily targeted at service providers, provide for disclosure, separation of proprietary funds from clients, and a contingency plan against black swan events like hacks.
Pushing the frontiers of regulations, the new regime of rules mandates political officeholders to disclose their digital currency holdings to foster transparency. Officials of regulatory agencies like the FSS and the Financial Services Commission (FSC) are also expected to make similar disclosures as the nation moves away from the horrors of Terra’s collapse.
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