South Korea is intensifying its oversight of cryptocurrency exchanges to combat illegal activities, with its Financial Supervisory Service (FSS) leading the effort. This comes after the enactment of the Virtual Asset User Protection Act in July 2024, which allows for severe penalties, including life imprisonment, for individuals who earn over 5 billion won (approximately $3.7 million) through illicit transactions.
The FSS will initially inspect two major Korean won-based exchanges that had been previously flagged for unusual activity. However, the scope will extend to other exchanges and a crypto wallet provider. Major platforms like Upbit, Bithumb, Coinone, Gopax, and Korbit are all under scrutiny to ensure compliance with the new legal framework.
A key focus of the FSS is to verify that user funds are segregated from the exchanges’ operational accounts to protect against financial mismanagement or hacking risks. Additionally, the FSS will assess whether these exchanges have sufficient insurance and reserves to cover potential losses, such as those caused by security breaches.
This move aligns with South Korea’s broader efforts to create a safer and more transparent environment for cryptocurrency trading, which constitutes about 5% of the global crypto market. With high trading volumes, especially on platforms like Upbit, the country is taking significant steps to ensure that investors are protected and that exchanges operate within the legal framework.