FSS to Conduct First-Ever Inspection Under New Crypto Regulation
The South Korean Financial Supervisory Service (FSS) is set to carry out an in-depth inspection of cryptocurrency exchanges to detect illegal transactions. This marks the first such inspection since the implementation of the Virtual Asset User Protection Act in July, which introduced severe penalties, including life imprisonment, for those profiting over 5 billion won (approximately $3.7 million) through illegal activities.
Targeted Inspections on Selected Crypto Exchanges
On Tuesday, the FSS announced its plan to scrutinize two South Korean won-based crypto exchanges that previously displayed “unusual cases.” The regulator also plans to extend its inspection to three additional digital asset exchanges and one crypto wallet service. Notably, major exchanges like Upbit, Bithumb, Coinone, Gopax, and Korbit are expected to come under FSS’s surveillance.
The inspections are not limited to these entities; the FSS has stated it will expand its examination to other crypto exchanges if any complaints or suspicions arise. This move reflects a broader commitment to tightening oversight in the wake of growing concerns about illegal financial activities within the cryptocurrency market.
Focus Areas: Illegal Transactions and Compliance
The FSS’s inspection will center on identifying any illegal or suspicious transactions and ensuring that all virtual asset service providers (VASPs) adhere to the regulatory framework. This framework mandates the protection of virtual assets and the maintenance of comprehensive records of all cryptocurrency transactions.
In a statement, the FSS emphasized its goal of establishing market order through strict penalties for any illegal activities uncovered during the inspection. The regulator also signaled its intention to push for regulatory revisions if gaps are identified during the inspection process.
On-Site Inspections and Internal Controls
The FSS plans to conduct on-site inspections of operators with poor financial standing and weak internal controls related to cryptocurrency storage. These inspections will assess compliance with regulations on the storage and management of user assets, the appropriateness of management contracts with agencies such as banks, and the correct calculation and payment of deposit usage fees.
Furthermore, the FSS will verify the actual possession of users’ cryptocurrencies, ensuring they are managed separately from the provider’s own assets and wallets. The inspection will also cover the adequacy of insurance coverage and reserve fund accumulation, crucial for addressing potential liabilities from incidents such as hacks.
The FSS’s comprehensive approach reflects the South Korean government’s determination to enforce stringent controls on the cryptocurrency sector, safeguarding against illegal activities and ensuring greater protection for investors and users.
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