South Korea has been working toward implementing certain regulations for cryptocurrencies for a while now. Recently, the country’s efforts have cleared their first hurdle as the National Assembly passed the first phase of the review of the cryptocurrency bill.

However, this is not the end of the process, as the Legislation and Judiciary Committee will still need to approve the bill. Assuming it gets the Committee’s nod, it will proceed to the final stage of approval, which is likely to happen later this year.

Once the bill becomes law, it will bring clarity and consistency to the country’s cryptocurrency market, which has been operating in a largely unregulated environment so far.

The new regulations are expected to create a safer and more secure trading environment for investors, as well as help prevent money laundering and other illicit activities that may have been taking place in the crypto market.

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Hwang Suk-jin, a Digital Asset Special Committee member of the ruling People Power Party stated:

As both the ruling and opposition parties have agreed on the matter, the legislation will become law within the first half of the year.

What Does The Crypto Bill Say?

According to the bill, “virtual assets” are described as electronic representations of economic value that can be electronically traded or transferred. However, it specifically excludes central bank digital currencies (CBDC) or any other services that fall under the purview of the Bank of Korea, the central bank of the country.

The bill mandates that crypto service providers maintain user assets and deposits separately from their own assets, have insurance, hold reserves for contingencies such as hacks or system failures, and record all transactions. Co-mingling users’ funds with providers’ funds are discouraged, and funds must be insured and backed by reserves to address situations such as hacks or system failures.

Consequences of Failing to Comply

Under the new bill, failing to include necessary information in investor disclosures, engaging in price manipulation, or promoting crypto assets falsely is deemed illegal. Anyone convicted of these offenses will be subjected to one year of imprisonment or a fine ranging from three to five times the amount of unfairly earned profits.

In the case of any individual causing losses exceeding 5 billion Korean won (equivalent to US$3.73 million) to consumers, the punishment increases to five years to life imprisonment. Therefore, the new regulations are intended to discourage illegal activities and protect investors’ interests.

The bill allows the regulator to oversee digital asset businesses, and service providers must report any irregular activities to the commission. However, the National Assembly calendar does not have any scheduled dates for the upcoming plenary sessions after April.

Across the pond, the European Parliament approved the MiCA regulation, which experts predict could become a universal standard for customer protection and business efficiency.