SOUTH KOREA STEPS UP ITS LAWMAKING IN VIRTUAL ASSETS-RELATED REGULATORY ENVIRONMENT

( by Andrew Baek, July 20, 2023 )

The Act on the Protection of Virtual-Assets Users (the “Virtual Assets Act”) will come into effect on July 19, 2024, a year from its recent promulgation.

To discern whether or not the use of certain assets puts their users under the protection of the Act, one must first know what qualifies as a Virtual Asset. Are in-game currencies Virtual Assets? How about NFT? Would Bitcoin, Ethereum, and Tether all be considered Virtual Assets under the Act? Central bank digital currencies, under which classification do they fall? Is the term Virtual Assets interchangeable with digital assets or perhaps with crypto assets?

Drawing boundaries as to where this concept of digital data with such cryptic retainability and transferability of value extends alone seems to have been a challenging task for many authorities around the world. This may well be because of the fact that depending on where the line is drawn, different laws would be invoked, involving different regulatory bodies, despite the fact that this digital construct may not be a good fit for any of the existing legal frameworks.

Accordingly, many countries, as well as the EU, have made endeavors to establish a new legal framework to address and regulate the digital construct in order to reduce confusion among relevant market actors not knowing which law applies to which activity, to prevent abuse of any legal gaps that may exist, and to protect consumers or users of such digital construct from unfair transaction activities; among those countries is South Korea.

Naturally, establishing a new legal framework is a time-consuming process requiring extensive research and preparation. Considering the urgency of user protection, last April, the Bill Review Subcommittee of the National Policy Committee opted to first commence with the establishment of a minimal regulatory framework for user protection rather than waiting for the lengthy establishment of international standards. This is how the Virtual Asset Act came into existence.

The definition of Virtual Asset under the Virtual Assets Act is largely borrowed from the same term used in the Act on Reporting and Using Specified Financial Transaction Information, adding one more exclusion to the definition, central bank digital currency issued by the Bank of Korea. Considering the fact that Virtual Assets had already been narrowly defined in the other Act, authorities really intended for a minimal regulatory framework when they enacted this legislation.

Please expect the details of the Virtual Asset Act to be covered in the next edition of this article.