Implementation of the Virtual Asset User Protection Act, Review of the Legality of Virtual Asset Business Operators

Law firm Veat received a request from virtual asset business operator A (hereinafter referred to as "the client") to conduct a legal review of the propriety of virtual asset business in accordance with the Virtual Asset User Protection Act and related laws.

The client requested a review of whether the act of supporting transactions so that a virtual asset exchange could operate and trade specific virtual assets was illegal under domestic law. Veat reviewed the possibility that the client’s specific virtual asset violated the “Special Financial Information Reporting and Supervision Ordinance” and the “Act on the Protection of Virtual Asset Users” (hereinafter referred to as “the Virtual Asset User Protection Act”). In particular, it reviewed whether the virtual asset corresponded to a virtual asset (so-called dark coin) that could not have transmission records separated when the virtual asset was transferred to another virtual asset address, where the virtual asset business operator could not confirm transmission records, and whether it corresponded to a ‘virtual asset issued by a special relationship person’ (self-issued virtual asset) under the ‘Act on the Protection of Virtual Asset Users’ (hereinafter referred to as ‘the Virtual Asset User Protection Act’). A thorough review was conducted as to whether the act of providing transaction support for specific virtual assets was illegal.

Legal Review of Virtual Asset Business Propriety

Virtual asset business operators must meet certain criteria for anti-money laundering and transparent financial transactions. In particular, the record of virtual asset transactions and the ability to track them are one of the strictly required items under the Special Financial Information Reporting and Supervision Ordinance. It is essential to legally review whether the virtual asset exchange complies with the regulations in the process of providing transaction support for specific virtual assets and whether it fulfills the anti-money laundering obligations.

1. Dark Coin

A dark coin refers to a virtual asset with technology that obscures or makes it impossible to identify transaction and transmission records. Due to these characteristics, there is a high possibility of being abused for money laundering or illegal transactions, so virtual asset exchanges often find it difficult to confirm transaction records. Transparent records of virtual asset transactions are directly related to the credibility and legal compliance of financial transactions, which is one of the key requirements that exchanges must fulfill. Virtual asset exchanges must constantly monitor suspicious transactions and take appropriate measures, such as notifying the financial supervisory authority when suspicious unfair trading activities are suspected. If the investigation and investigation by the financial supervisory authority determine that the suspicion is unfair trading, criminal penalties and fines may be imposed on the person who committed the unfair trading. Veat reviews whether the virtual asset subject to transaction support corresponds to a dark coin and the risk from a user protection perspective, providing legal advice so that the virtual asset business operator can operate the business stably.

2. Self-Issued Virtual Asset

The Virtual Asset User Protection Act is a law enacted on July 19, 2024, to protect user assets and prevent illegal transactions by virtual asset exchanges, and stipulates restrictions on virtual assets issued by ‘special relationship persons’. Based on the Virtual Asset User Protection Act, Veat reviews whether the virtual asset subject to transaction support has a risk of violating the law, and especially reviews whether the entity that issued it is in a special relationship with the exchange, i.e., whether it corresponds to a self-issued virtual asset.

Laws and regulations related to virtual assets are in a stage of gradually being established in Korea, so virtual asset business operators need to conduct thorough legal reviews to determine the legal meaning of specific transaction support acts in the process of operating a virtual asset exchange and whether the business they intend to carry out is illegal.

Veat has extensive experience in IT, blockchain, and legal advice related to virtual assets. Song Do-young, Representative Attorney participated in the enactment process of the Promotion Act on Asset-Linked Convergence Industry, demonstrating deep expertise in the virtual asset field, and An Il-woon, Partner Attorney serves as an IT specialist certified by the Korea Bar Association and a member of the Korea Bar Association Blockchain Special Committee, actively providing legal advice and contributing to issues related to blockchain technology and virtual assets.

In addition, Song Woo-seok, Senior Foreign Attorney has experience serving as a senior legal counsel at Binance, a global virtual asset exchange, and currently serves as legal counsel for the Korea Blockchain Business Cooperative. With Veat’s differentiated expertise, we provide the optimal solution that allows our clients to simultaneously achieve their business goals and legal compliance in the rapidly changing regulatory environment in the virtual asset field.

If you need legal assistance regarding virtual asset businesses, the Virtual Asset User Protection Act, or other virtual asset related matters, please feel free to contact Veat.

Thank you.
Veat Law Firm