South Korea’s financial regulator is ramping up oversight of the virtual asset market, warning of severe consequences for illegal transactions just two months after implementing new protective legislation. Cryptocurrency scammers can now spend life sentences behind bars if their illegal operations exceed $4 million.

South Korea Tightens Grip on Virtual Assets

Financial Supervisory Service (FSS) Chief Lee Bok-hyun met with executives from 16 virtual asset operators today (Thursday), emphasizing the government’s commitment to enforcing the Virtual Asset Users Protection Act, which took effect on July 19.

“The financial government will continue to successfully implement the virtual asset users act by carrying out its oversight,” Bok-hyun commented, quoted by the Yonhap News Agency. The FSS will also “take stern punitive measures under the principle of zero-tolerance by focusing all its investigative resources when suspicions of illegal transactions are detected.”

The FSS plans to closely monitor market volatility and the spread of unverified information, particularly regarding newly listed coins. Lee urged cryptocurrency exchanges to enhance their monitoring systems and maintain open communication with supervisory authorities.

The FSS has already announced plans to inspect two cryptocurrency exchanges where “unusual cases” were detected, with regular inspections scheduled for three additional exchanges and a wallet provider.

Lee hinted at potential future regulatory adjustments. The FSS wants to continue to consult closely with businesses and related agencies to set the direction of “second-phase” revisions.

The Virtual Asset User Protection Act was triggered by a significant disruption in the industry caused by Terraform Labs and its founder, Do Kwon, from South Korea. Terra’s failure in May 2022, leading to market losses of over $450 billion, led legislators to address regulatory deficiencies and enhance investor protections quickly.

Crypto Criminals Face Potential Life Sentences

Under regulations introduced over two months ago, cryptocurrency criminals in South Korea can now face life imprisonment if the value of their illegal transactions exceeds 5 billion won, or nearly $4 million.

The new regulations require cryptocurrency exchanges to establish robust monitoring mechanisms to detect and report suspicious activities to financial authorities. Specifically, the law prohibits the use of insider information, market price manipulation, and unfair trading practices.

Industry experts emphasize the importance of an “order book information loading system” as a key component of the new monitoring requirements. The law mandates exchanges to maintain detailed trading records, including order book information at the time an order is placed, which is crucial for authorities to determine instances of unfair trading.

Work on the new regulations lasted for many months. In March 2023, the South Korean National Assembly passed a law establishing a legal framework for regulating digital assets. Subsequently, in February 2024, the Financial Supervisory Service (FSS) officially enacted new laws.