An Introductory Review of Virtual Asset Regulations in Korea

Abstract

With the advent of Bitcoin in 2008, the era of virtual assets opened in Korea. However, the government was indifferent to the virtual asset market, and in 2017, it issued a guideline prohibiting initial coin offerings (ICOs) in Korea. However, the Corona crisis and investment by the MZ generation drew political attention and became an important issue in the 2022 presidential election. In this trend, the government enacted the Virtual Asset User Protection Act as the first stage of legislation in July 2023, and the Act took effect from July 2024. Korea has a capital market law that regulates the existing capital markets, but the concept of securities being subject to regulation was relatively narrow, so most virtual assets fell outside legal regulations. Accordingly, the need for a virtual asset law was raised, and legislation was made based on the MiCAR of the EU, which was in a similar situation to Korea. Legislation was initially prepared as a framework law, but due to changes in domestic and international conditions, such as the legislative delay in passing the EU’s MiCAR and the Terra/Luna crisis, it was decided to legislate in stages, and the Virtual Asset User Protection Act was enacted accordingly. The Virtual Asset User Protection Act consists of two pillars: the storage of virtual assets by virtual asset users and the regulation of unfair trading in the virtual asset market. For the storage of virtual assets, obligations such as separation into cold wallets and insurance subscription are imposed on virtual asset exchanges, and regulations such as insider trading, manipulations, and unfair trading are stipulated similarly to those of the capital market. The Virtual Asset User Protection Act is first-stage legislation, and the Korean government is studying second-stage legislation to convert it to the framework law. Second-stage legislation will include disclosure regulations and regulations on stablecoins, which were not mentioned in the first-stage legislation.