South Korea Is Developing Phase 2 Of Virtual Asset User Protection Act

Key Points:

• South Korea’s Financial Services Commission is developing a stablecoin regulatory regime and reviewing efforts to establish a virtual asset disclosure system.
• The Virtual Asset User Protection Act passed by the National Assembly is a “first step bill” focusing on investor protection, with plans for a “Phase 2 Act” to be developed based on the Financial Services Commission’s recommendations.
• The review aims to address conflicts of interest in virtual asset issuance, establish regulatory systems for different virtual asset types, and study global regulatory trends for comprehensive market discipline.

South Korea’s Financial Services Commission (FSC) is making significant strides in the regulation of cryptocurrencies by developing a stablecoin regulatory regime and establishing a virtual asset disclosure system. The move comes as the country seeks to bolster investor protection and enhance the oversight of the rapidly evolving virtual asset market.

According to News1, the recently passed Virtual Asset User Protection Act, hailed as a “first step bill,” emphasizes safeguarding the interests of investors in the cryptocurrency space. Building upon this initial legislation, the FSC is now focusing on formulating the “Phase 2 Act,” which will encompass a comprehensive set of regulations related to the issuance of virtual assets and the regulatory framework governing different types of cryptocurrencies.

To ensure a robust regulatory framework, the FSC has initiated a research service to review opinions and suggestions put forward by the National Assembly regarding virtual assets. The objective is to identify areas of improvement and legislative considerations to bolster the regulatory system surrounding cryptocurrencies.

One of the critical aspects being examined is the issue of conflicts of interest that may arise during the issuance and distribution of virtual assets by cryptocurrency operators. By addressing these potential conflicts head-on, the FSC aims to create an environment that is more transparent, accountable, and secure for both investors and market participants.

In terms of the specific types of virtual assets, the FSC is planning to establish a regulatory system that caters to the nuances and characteristics of different cryptocurrencies. This will include stablecoins, which are digital assets pegged to a stable reserve, as well as security tokens and utility tokens, each with unique features that necessitate appropriate regulatory oversight.

The regulatory system will also encompass virtual asset evaluation businesses, advisory businesses, and public disclosure businesses. By bringing these entities within the regulatory purview, the FSC intends to enhance transparency and accountability in the cryptocurrency market.

Additionally, the FSC is exploring the possibility of creating a system that can provide integrated market prices and comprehensive disclosures in line with relevant regulations. Such a system will contribute to a more transparent and efficient market, benefitting investors and stakeholders alike.

Moreover, in the event of unforeseen incidents or accidents in the cryptocurrency space, the FSC is contemplating regulations that can shift the burden of proof. This approach, similar to the Electronic Financial Transaction Act, aims to establish clear accountability and responsibility in case of any adverse occurrences.

Notably, the FSC is keeping a keen eye on global legislative and regulatory trends concerning virtual assets. Through a comprehensive study of the approaches and methods adopted by major countries and international organizations, the FSC intends to learn from global best practices and align South Korea‘s regulatory requirements accordingly.

The FSC’s proactive stance in developing a stablecoin regulatory regime and advancing the regulatory framework for cryptocurrencies reflects the country’s commitment to fostering a well-regulated and secure virtual asset market. As the cryptocurrency market continues to evolve, ensuring investor protection and market integrity remains a top priority for South Korea’s financial authorities. The development of a robust regulatory framework is expected to contribute to the sustainable growth and maturity of the virtual asset ecosystem in the country.

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