South Korea first Crypto Investor Protection Law goes into full effect

South Korea’s first cryptocurrency investor protection law is now in full effect. The inaugural law protecting cryptocurrency investors was passed by the Financial Services Commission of South Korea (FSC) and went into effect on Thursday. The new regulations, which were fast-tracked in response to the catastrophic collapse of FTX and Terra-Luna, are centered on providing safety nets for crypto investors in the country. 

The goal of South Korea's Virtual Asset User Protection Act (VAUPA) is to combat unfair trading practices in the wake of past events, as mentioned earlier, the post said. It is anticipated that this will contribute to the establishment of a stable order in the virtual asset market by making it feasible to impose severe punishments on individuals involved in unfair trading practices.

Digital assets are defined as electronic tokens with economic value that can be exchanged or transferred electronically under South Korea's Act, a copy of which is included with the FSC press release. While it covers cryptocurrencies in general, non-fungible tokens and digital currencies issued by central banks are not included, the post added.

The laws require cryptocurrency exchange operators to place user funds in banks or other financial institutions as a protective measure against bankruptcies. Local exchanges are also required to offer interest rates ranging from 1% to 1.5% on these deposits. 

Exchanges are required to keep some of their users' virtual assets in cold wallets as a precaution against system failures and hacking. They must also get insurance or put money aside in case they suffer losses, the post added.

The law requires cryptocurrency exchanges to keep an eye on and report unusual transactions in order to combat unfair trading practices. These range from irregular price movements or trading volumes to financial regulators, improving market integrity, and protecting investors, the post added.

Through a number of regulatory initiatives, South Korea has attempted over the years to tighten controls over the handling and trading of cryptocurrencies.

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