Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Deposits guaranteed in crypto cxchange bankruptcies, but not coins
A representation of the virtual cryptocurrency Bitcoin / Korea Times photo by Shim Hyun-chul
By Lee Yeon-woo
Starting next month, customers can receive their balance back in the event of cryptocurrency exchange bankruptcies.
The Financial Services Commission announced, Tuesday, that proposals to protect virtual asset users were passed at a Cabinet meeting.
The proposals include measures such as defining and classifying virtual assets, outlining user protection responsibilities for virtual asset service providers, and establishing legal frameworks to address unfair trading practices. These measures are scheduled to come into effect on July 19.
Virtual asset service providers are now required to pay interest on user deposits, stemming from the practice of depositing and entrusting funds in banks, which generates income. Should a provider declare bankruptcy or cancel its business registration, these deposits must be promptly returned to users.
Furthermore, providers must secure a minimum of 70 percent of users' virtual assets in cold wallets, which are offline and disconnected from the internet. They are also required to continue monitoring for suspicious transactions.
However, in the event of a virtual asset service provider's bankruptcy, users will not be able to reclaim their purchased virtual assets, such as Bitcoin or Ethereum.
Financial authorities currently face challenges in enhancing legal protections due to the ambiguous legal status of virtual assets, which are not officially recognized as investment assets.
"While cash receives legal protection, virtual assets are considered investments undertaken at the individual's own risk. Establishing protective mechanisms similar to those used for stocks, such as the Korea Securities Depository, is challenging due to the nature and regulatory status of virtual assets," an official at a financial regulatory agency explained.