South Korea Act on the Protection of Virtual Asset Users

The Act defines “virtual assets” as electronic certificates with economic value that can be traded or transferred electronically, while excluding items such as certain closed-use certificates, game-related assets, electronic money, electronic securities, electronic bills of lading, Bank of Korea digital currency, and other instruments set by Presidential Decree. A virtual asset service provider, or VASP, includes persons conducting trading, exchange, transfer, safekeeping or administration of virtual assets, and brokerage or agency services connected to trading or exchange.

The statute applies to South Korean virtual asset activity and reaches overseas conduct where the effects extend to the Republic of Korea. It sits alongside South Korea’s anti-money-laundering VASP reporting framework.

VASPs must segregate users’ deposits from their own funds by placing or entrusting them with a prescribed custodian, such as a bank. The Act requires the deposit to be identified as user property and restricts offsetting, attachment, transfer, or collateral use except as prescribed by subordinate rules.

For virtual assets held for users, VASPs must keep user assets separate from their own assets, maintain user lists, and effectively possess the same types and quantities of assets entrusted by users. The Act also requires a prescribed portion of user virtual assets to be held offline, and it requires insurance, mutual aid, or reserves for hacking or computer failures. Transaction records must be retained for 15 years after the relevant transactional relationship ends.

The Act prohibits the use of material nonpublic information, coordinated or false trades designed to mislead the market, price manipulation, fraudulent schemes, false statements, and certain trading by VASPs in assets issued by themselves or related persons. VASPs operating virtual asset markets must monitor abnormal transactions, take user-protection measures, and report suspected violations to the Financial Services Commission and the Financial Supervisory Service. In specified cases, reporting to investigative authorities is also required.

The statute also restricts discretionary blocking of user deposits or withdrawals. Where a VASP blocks deposits or withdrawals for a prescribed good cause, it must provide advance notice to the user and report the action to the FSC. The Act creates damages liability for certain violations, but it does not guarantee the value or safety of virtual assets.

The FSC is the lead supervisory authority, with the FSS carrying out inspection and investigation functions delegated or requested under the statute. The FSC may inspect VASP business and financial status, request reports and documents, publish investigation results, issue corrective orders or warnings, suspend all or part of business operations, and file accusations with investigative agencies.

For unfair trading violations, the FSC may impose penalty surcharges of up to twice the profit gained or loss avoided, or up to KRW 4 billion where gains cannot be assessed. Criminal penalties include imprisonment and fines tied to unfair gains, with aggravated penalties for larger amounts. Administrative fines of up to KRW 100 million may apply for failures involving deposits, safekeeping, reserves, records, reporting, monitoring, or inspection cooperation.