[Virtual Asset Lawyer] Find out everything at once, from the meaning of a virtual asset business operator to judgment criteria, unreported risks, and countermeasures.

Virtual assets are assets transferred and stored digitally based on blockchain technology, and virtual asset businesses are entities that operate by providing services such as transactions, sales, purchases, and custody management using them. Currently, the definition of a virtual asset business is stipulated in the 「Act on the Protection of Virtual Asset Users, etc.」(hereinafter referred to as the “Virtual Asset User Protection Act”).

Definition and Judgment Criteria for Virtual Asset Businesses

Recently, the Supreme Court issued an important ruling clarifying the judgment criteria for whether an entity is a virtual asset business. (Supreme Court Case No. 2024Do 10710) When judging whether a virtual asset business is involved in virtual asset trading as a business, it is deemed a business if, for example, they trade virtual assets for the benefit of an indefinite number of customers or users and receive compensation, and[Specific Financial Information Act Article 2, Subsection 1, Items 1) to 6)], the recognition of profitability is acknowledged when such transactions are continuous and repeated. However, the Supreme Court stated that the profitability of a virtual asset business should be judged reasonably by comprehensively examining various circumstances revealed in each case, such as the purpose, type, scale, frequency, period, and environment of virtual asset-related transactions, in light of the purpose of the amendment of the Specific Financial Information Act, presenting the judgment criteria for virtual asset businesses.

However, it was ruled that an ordinary user of a virtual asset exchange who continuously and repeatedly trades or exchanges virtual assets solely through the exchange for their own account and benefit would not likely be considered a virtual asset business unless special circumstances exist.

This Supreme Court ruling is noteworthy as it clarifies the judgment criteria for virtual asset businesses, eliminating legal uncertainty in the virtual asset industry and providing a clear guideline. A virtual asset business refers to an entity performing the following tasks.

Obligations of Virtual Asset Businesses

If an entity is deemed a virtual asset business, they must comply with prescribed obligations such as reporting obligations, anti-money laundering obligations, maintenance of transaction records, and protection of user assets according to the Specific Financial Information Act.

- Reporting Obligations
A virtual asset business or an entity intending to operate one must report the name, representative’s name, location of business, and contact information to the Financial Intelligence Unit (FIU) under the Ministry of Finance and register as a virtual asset business. This process requires mandatory certification of the Information Security Management System (ISMS).

- Anti-Money Laundering Obligations
They must faithfully implement customer verification (KYC, Know Your Customer), suspicious transaction reporting (STR, Suspicious Transaction Report), and high-cash transaction reporting (CTR, Cash Transaction Report).

- Maintenance of Transaction Records
The Specific Financial Information Act requires the retention of all virtual asset transaction records for five years. Failure to comply with this obligation may result in imprisonment for up to five years or a fine of up to 50 million won.

- Protection of User Assets
They must establish an internal control system to prevent money laundering and ensure transaction transparency. This requires checking the status of reporting and the effectiveness of the anti-money laundering system quarterly.

- Verification of Obligations for Foreign Businesses
Foreign businesses providing virtual asset services in Korea must clearly verify whether they are subject to reporting obligations, understand the differences in legal regulations between countries, and prepare for reporting in cooperation with local legal experts.

- Legal Advice from Professionals
They should review the business structure and operating methods with the help of a legal professional, prevent problems that may arise during the reporting process, and minimize risks through legal advice from the initial stage.

Law firm Bit provides professional legal advice related to virtual asset business registration and compliance with legal obligations, review of business structure, and determination of profitability. Based on a broad understanding of the legal status and regulatory status of virtual assets, it provides customer-centered legal advice to support the stability of business operations.

Furthermore, Law firm Bit received a commendation from the Ministry of Science and ICT for its contribution in the field of digital innovation and was awarded the ‘2023 대한민국 Digital Innovation Award,’ and it is rapidly and accurately fulfilling customer needs through know-how accumulated through consulting experience with startups and IT companies.

If you need detailed legal advice related to virtual asset businesses, please contact Law firm Bit.

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Law firm Bit