The South Korean Parliament passes the virtual asset user protection bill to prevent crises like the collapse of Terra Luna. The new law requires digital asset companies to secure customer funds, and maintain a certain amount of reserve capital. South Korea’s offer to extradite Terra co-founder Do Kwon on fraud charges puts this country in competition with the United States.
The South Korean Parliament passed a new virtual asset user protection bill to codify the rules that could have prevented the collapse of Terra Luna.
The law consolidates 19 cryptocurrency-related pieces of legislation, including definitions of digital assets, penalties for crimes such as insider trading and market manipulation, and expanding the authority of the Financial Services Commission (FSC).
The new legislation is geared towards protecting investors and addresses market manipulation and unfair trading practices.
South Korean Bill Regulates Exchanges to Protect Investors
The much-needed legislation puts cryptocurrencies under the jurisdiction of the Financial Services Commission, which will oversee cryptocurrency service providers. These include exchanges and custodians.
Under the new law, digital asset firms are required to secure customer funds, maintain a certain percentage of reserve capital, and keep necessary records.
South Korean platforms Haru and client Delio halted withdrawals in June after one of Haru’s service providers violated their agreement. Haru later laid off 100 employees to reduce risk, as customers unable to withdraw funds took legal action.
The chairman of the country’s National Policy Committee, Back Hye-ryun, said South Korea’s new crypto bill would focus first on investor protection. Existing capital markets laws will continue to govern securities, while the new bill will cover Bitcoin and other assets.
Critically, the new bill means that South Korea is firmly positioned to compete with its Asian rival, Hong Kong, in attracting crypto investors. While strict, Hong Kong’s new digital asset laws provide companies with a strong foundation for operating in the region.
In early 2023, Gemini co-founder Cameron Winklevoss predicted that Asia would spur the next bull market.
Do Kwon Extradition Still at Stake
South Korean prosecutors believe Terra co-founder Do Kwon defrauded investors and want him extradited from Montenegro. Kwon created and promoted the TerraUSD stablecoin and its sister token LUNA as the holy grail of financial independence.
TerraUSD was held at $1 through an algorithm Kwon developed to mint and burn LUNA depending on whether Terra was above or below $1.
Meanwhile, Kwon is currently serving a four-month sentence in the Balkan nation for passport fraud.
South Korea’s offer for Kwon’s extradition is competing with the United States. Thus, the Securities and Exchange Commission (SEC) has filed eight charges of fraud. Montenegrin authorities said it is not a foregone conclusion which country will honor the nation’s extradition request.
The decision will be based on the severity of each country’s charges against Kwon, among other things. Kwon’s lawyers previously said the SEC has no authority to bring charges against the Terra founder.
In another vein, Bloomberg reports that jurisdictions around the world are actively working towards regulating digital assets. Hong Kong and Dubai are seeking to attract crypto investment, while the European Union recently passed its Markets in Cryptoassets (MiCA) regulation. Meanwhile, US agencies have implemented strong measures after a series of explosions, including the FTX exchange’s bankruptcy.
By Audy Castaneda
