Korea's new era of virtual currency regulation! The first dedicated law for crypto assets officially launched today

On July 19, 2025, the Virtual Asset User Protection Act officially came into effect in South Korea, marking a historic moment in the country’s virtual currency sector. As the first dedicated law targeting cryptocurrencies in Korea’s history, the enactment of this law signifies that the Korean virtual currency market has entered a comprehensive regulatory era. The legislation underwent over a year of deliberation, passing the National Assembly on June 30, 2025, and being officially promulgated on July 18 of the same year, finally taking effect on July 19.

Three Core Provisions Safeguard the Market and Enhance User Asset Protection

According to an official statement from the Korea Financial Supervisory Commission (FSC), the new law encompasses 19 provisions related to cryptocurrencies. Among these, three key clauses explicitly address user protection, trading conduct regulation, and supervisory authority.

First, the law introduces comprehensive protection mechanisms for user deposits and virtual assets, representing a major breakthrough in Korea’s virtual currency regulation. Second, the new law establishes clear penalties for illegal activities such as “trading based on non-public information,” “market manipulation,” and “unfair trading,” helping to combat market misconduct. Third, the law designates the Korea Financial Supervisory Commission (FSC) as the supervisory authority over Virtual Asset Service Providers (VASPs), granting it the power to oversee, inspect, and discipline industry operators.

Exchanges Must Enforce Strict Controls, VASP Regulatory Framework Officially Launched

In terms of user protection, the new law imposes a series of stricter regulations on cryptocurrency exchanges. User deposits must be securely stored in banks to ensure fund safety; virtual assets held by users and platform-owned assets must be kept completely separate, with VASPs required to ensure that the cryptocurrencies they hold match the actual assets owned by users in type and quantity.

Additionally, in response to responsibilities arising from hacker attacks, network failures, or other incidents, exchanges are required to mitigate potential liquidity crises through insurance or reserve funds. These regulations ensure that even in emergency situations, users’ assets are adequately protected.

Financial Institutions Granted Regulatory Authority; Violators Face Heavy Penalties

Within the framework regulating “unfair trading activities,” virtual asset platform operators must immediately report suspicious trading activities to the Korea Financial Supervisory Service (FSS) via monitoring systems. Financial and investigative agencies will conduct investigations, and if violations are found, appropriate sanctions will be enforced according to law.

Following the law’s implementation, Korean financial regulatory authorities have gained new supervisory powers. The Financial Supervisory Service (FSS) has the authority to inspect whether VASPs comply with user protection obligations; the Financial Supervisory Commission (FSC) can impose sanctions on violators, including orders to rectify, suspension of operations, and fines. This comprehensive regulatory system ensures the effective enforcement of the law and promotes the healthy development of the entire virtual currency market.

Before the law took effect, the Korean government granted VASPs a grace period of up to one year, allowing virtual asset platforms sufficient time to review and revise their systems and monitoring measures to ensure compliance with all new legal requirements.