Enactment of Regulations on the Investigation of Virtual Asset Markets

On March 28, 2024, the Financial Services Commission (the “FSC”) announced the enactment of the proposed “Regulations on the Investigation of Virtual Asset Markets” (the “Investigation Regulations”) to set forth detailed rules on monitoring, investigating or taking measures against abnormal transactions in connection with unfair trade practices, such as price manipulation and the use of material non-public information (“MNPI”), in a virtual asset market.

The Act on the Protection of Virtual Asset Users (the “Virtual Asset User Protection Act”), effective as of July 19, 2024, prohibits unfair trade practices related to virtual assets, such as the use of MNPI, price manipulation and unfair trading. It also imposes criminal sanctions or administrative penalties on any person who violates these prohibitions. Accordingly, the FSC established the Investigation Regulations to set forth a detailed regulatory regime. This regime outlines how virtual asset exchanges should keep on the lookout for abnormal transactions and take measures against individuals engaging in unfair trade practices. Furthermore, it specifies how the FSC or the Financial Supervisory Service (the “FSS”) may investigate suspicious transactions and either file criminal complaints or make criminal referrals to law enforcement agencies, which may result in criminal sanctions or the imposition of administrative penalties by the FSC.

The Investigation Regulations govern the detailed procedures and methods for each phase of monitoring, investigating and imposing measures against unfair trade practices. The key details are as follows:

Monitoring and Measures Against Abnormal Transactions by Virtual Asset Exchanges

Upon detecting an abnormal transaction, a virtual asset exchange must take appropriate measures to protect users, such as: (i) issuing a warning notice on the abnormal transaction, (ii) inquiring about facts/rumors or disclosing the results of such an inquiry, (iii) restricting the volume and frequency of orders, and (iv) suspending trading.
If a virtual asset exchange suspects unfair trade practices based on the results of abnormal trade monitoring, it must notify the FSC and the FSS. However, upon the law enforcement agency’s request in cases where the alleged unfair trade practice is sufficiently proven or an investigation is under way, the exchange shall report the case to the investigation agency without delay.

Financial Authorities’ Investigation, Complaint Filing and Notification

The FSC and the FSS may investigate unfair trade practices by using means such as (i) requesting the submission of statements, books, documents or financial transaction information, and (ii) summoning for interviews. The relevant procedure in the Investigation Regulations must be followed.
Based on the investigation results, the FSC may follow the following procedure: (i) prior notice, (ii) submission of opinion, and (iii) resolution (by the FSC). The FSC may then take measures such as filing a criminal complaint with, or making a criminal referral to, law enforcement agencies in accordance with the standards for measures set forth in the Investigation Regulations. However, if immediate notification to a law enforcement agency is necessary, or if there is a risk of flight or destruction of evidence, the fast-track process is available with the approval of the Governor of the FSC, without a resolution from the FSC.

Imposition of Administrative Penalties by FSC

Upon receipt of the investigation results from the law enforcement agency, the FSC may impose administrative penalties. However, even before receiving the investigation results, the FSC may impose administrative penalties through consultation with the Prosecutor General or one year after filing the complaint/notification.

Virtual Asset Market Investigation and Review Committee

The “Virtual Asset Market Investigation and Review Committee” will be established for the purpose of discussing and coordinating investigation policies, joint investigations and work assignments with competent agencies (i.e., the FSC, FSS and Prosecutors’ Office). Additionally, the “Virtual Asset Market Investigation Deliberation Committee” will be established as a preliminary deliberative body to provide advice to the FSC on measures that may be taken.

The Investigation Regulations, along with the Virtual Asset User Protection Act, have established a detailed regulatory regime to address unfair trade practices. This regime includes the monitoring of abnormal transactions, investigations by the FSC and FSS, criminal investigations, criminal punishment and the imposition of administrative penalties. The Investigation Regulations are designed to enable the effective and systematic monitoring, investigation, sanction and punishment of unfair trade practices in the virtual asset market. Consequently, both virtual asset service providers under the Virtual Asset User Protection Act and users engaging in transactions within a virtual asset market need to pay special attention to ensure that their virtual asset transactions do not constitute unfair trade practices and establish an internal control system to prevent such practices. In particular, companies involved in the issuance of virtual assets need to establish internal control systems in advance to avoid being unnecessarily suspected of using MNPI. If an investigation of unfair trade practices is carried out, it will be necessary to be fully aware of the procedures under the Investigation Regulations to ensure a successful defense.

[Korean Version]

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