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South Korea’s parliament has approved the country’s first stand-alone crypto-asset law, which integrates 19 cryptocurrency-related laws and empowers the Financial Services Commission (FSC) to oversee crypto-asset operators and custodians.
The Virtual Asset User Protection Act (Act) aims to strengthen investor protections and comes just over a year after the collapse of the TerraUSD stablecoin and LUNA token – both created by Terraform Labs CEO and South Korean Do Kwon.
Under the new law, virtual asset service providers (VASPs) are required to implement controls and procedures to protect users’ assets. These include separating users’ cryptoassets from their own, mandatory storage of a portion of cryptoassets held in cold wallets, insurance or reserves in case of computer hacking or network failure, and proper recordkeeping of cryptoasset transactions for tracking and verification purposes.
The law also prohibits and punishes illegal activities such as the use of non-public information, market manipulation and fraudulent trading practices – for example, false reporting and willful omission – while restricting VASPs from trading the cryptoasset they issued. VASPs are expected to monitor their platforms for unusual activity and take appropriate action when suspicious transactions are detected.
Singapore introduces new measures to protect crypto investors
On July 3, the Monetary Authority of Singapore (MAS) announced new requirements for digital payment token (DPT) service providers to hold client assets in legal trust before the end of the year.
These changes will mitigate the risk of loss or misuse of client assets and facilitate the recovery of client assets in the event of insolvency of the DPT service provider. DPT service providers will also be restricted in enabling the lending and investment of DPT tokens by their retail customers.
Three documents were published as part of the advertisement. The first tranche of MAS’s response to its public consultation last October on regulatory measures to improve investor protection and market integrity; a consultative document on the proposed amendments to the Regulation on Payment Services (PSR) in order to implement the key requirements for separation and custody; and another consultation on proposed requirements for DPT service providers to address unfair trading practices.
European body publishes report on crypto risks
MONEYVAL has published a report on the money laundering and terrorist financing risks that cryptoassets and VASPs pose to Member States and Territories. It found that MONEYVAL members continue to struggle with the implementation of FATF Recommendation 15, with four out of five members assessed as only partially or non-compliant with FATF requirements.
The report also identified the avenues criminals use to launder the proceeds of crime, namely: exchanges, aggregators and other crypto-asset platforms, including e-gaming, sports betting and non-volatile tokens (NFTs).
In addition, he examined whether law enforcement agencies have adequate powers and tools to investigate crimes involving crypto assets. The report includes examples of cases investigated by relevant authorities and highlights good practices and challenges in applying risk-based supervision in the sector.
Denmark orders Saxo Bank to liquidate its cryptocurrencies
On July 5, the Danish Financial Supervisory Authority (FSA) announced that it had ordered Saxo Bank – a Copenhagen-based multi-asset broker – to divest its crypto assets. It was concluded after a careful assessment that trading in digital assets is not allowed under the Law on Financial Operations and is “outside the legal scope of operations of financial institutions”.
Saxo Bank previously launched a service in May 2021 that allows clients to trade Bitcoin, Ether and Litecoin from a single margin account without the need to maintain a crypto asset wallet.
“Saxo Bank A/S traded crypto-assets for its own account to cover risks related to the offering of other financial products,” the statement said. “However, this does not change the fact that this activity, in itself, is not permitted by Danish financial institutions.”
Thailand prohibits the use of clients’ assets for lending and investment
Thailand’s Securities and Exchange Commission (SEC) has issued new rules for VASPs that focus on investor protection. They require VASPs to adequately disclose and warn customers of the potential risks associated with trading cryptoassets, including the fact that the entire investment amount may be lost. The warning must be clearly visible on all platforms, and users must agree and acknowledge the risks before being allowed to use any service.
The new rules also prohibit VASPs from providing or supporting deposit-taking and lending services. They are not allowed to lend or invest in customers’ cryptoassets for returns, and are prohibited from advertising or otherwise influencing the general public to deposit or lend their cryptoassets to any service provider.
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