If crypto-related entities fail to comply with the upcoming rules, they could face hefty fines and imprisonment.
In a first-phase review, South Korean legislators approved a proposed bill that would give the Financial Services Commission extensive authority over digital assets.
The proposed legislation focuses on consumer protection and compliance reporting, outlining various requirements for the sale, storage, and trading of cryptocurrencies.
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A member of the ruling People Power Party’s Digital Asset Special Committee, Hwang Suk-jin, noted for the news portal Forkast that “both the ruling and opposition parties have agreed on the matter,” indicating that the legislation could become law by the end of the year.
If enacted, this bill would be one of the most comprehensive and extensive national cryptocurrency legislation globally.
The legislation would demand crypto exchanges and similar service providers to split their internal holdings from user assets, maintain reserves in case of non-market-related losses, and carry insurance.
It is worth noting that these rules wouldn’t apply to central bank digital currencies (CBDC) and digital assets linked to the Bank of Korea.
South Korean businesses and individuals linked to the cryptocurrency industry would need to self-report irregularities to maintain compliance. The proposed legislation includes recommendations for penalties in case of noncompliance, suggesting relatively stiff punishments.
Forkast reports that the bill contains provisions stating that those convicted of infractions resulting in losses below $3.75 million could face fines equal to three to five times the total losses and up to a year in prison. Crimes resulting in losses above $3.75 million could receive prison sentences from five years to life imprisonment.
Crypto-related entities would receive punishments for “failing to include required information in investor disclosures, price manipulation and false promotion of crypto assets.”
The legislation was introduced in June 2022, shortly after the Terra ecosystem’s collapse led to significant declines in the cryptocurrency industry. Recently, Terraform Labs co-founder Shin Hyun-seong and nine others were indicted by the South Korean government, with Do Kwon arrested in Montenegro.
This bill’s advancement demonstrates South Korea’s commitment to strengthening regulatory oversight and consumer protection in the rapidly evolving crypto landscape.