The Foundation aims to "protect the rights and interests of virtual asset users and establish a sound order in market transactions". It will receive users’ assets transferred out from closed down exchange service providers after a having consultation process, and safely keep and manage these assets, and ultimately return them to their owners.

The Act contains provisions "(a) protecting users’ deposits and virtual assets, (b) regulating unfair trading activities, such as price manipulation, (c) authorizing the financial regulators to supervise, inspect, and sanction VASPs, and to investigate and take appropriate actions against those engaging in unfair trading activities."

In its press release, the Commission said:

"After closely examining the regulatory systems in major countries, the FSC, along with the Korea Financial Intelligence Unit (KoFIU), and the Financial Supervisory Service (FSS) decided to apply the following supremacy principle when enforcing laws on NFTs. First, NFTs shall be scrutinized to see if they qualify as securities under the purview of the Financial Investment Services and Capital Markets Act (FSCMA). Then, NFTs shall be seen in light of the Act on the Protection of Virtual Asset Users to determine if they qualify as virtual assets.

 "The legal characteristic of NFTs should be determined by the issuers, distributors, and dealers of NFTs based on their practical characteristics after considering wide-ranging factors, such as the issuance and circulation structure, agreement and advertisement, business and service content, and so on."

Pursuant to the Act on the Protection of Virtual Asset Users, which is scheduled to go into effect from 19 July 2024, unfair trading activities involving virtual assets, such as the use of material non-public information, price manipulation, and other fraudulent activities, are prohibited and subject to criminal punishment or penalty surcharge.

Once the Act becomes effective, unfair trading activities (or suspicious transactions) involving virtual assets will be first (i) monitored by virtual asset service providers, then the case will be (ii) examined by the Financial Services Commission and the Financial Supervisory Service to bring a formal charge with the prosecutors’ office, which will then (iii) investigate the case for (iv) imposing a criminal punishment or penalty surcharge.

The regulator issued a preliminary notice for the new operating rules for public comment from 28 March to 7 May 2024.

The newly established law is aimed at "guaranteeing protection of assets held by virtual asset users, regulating unfair transaction activities in the virtual asset market and conferring the market oversight and sanctions authority to the FSC."

Under the Act, virtual asset service providers (VASPs) are required to "(a) manage their customers’ virtual asset transaction deposits separately from their own assets, (b) keep virtual assets owned by their customers separately from the virtual assets in their possession, (c) actually hold the types and quantities of virtual assets entrusted by the users of virtual assets while maintaining a certain proportion of virtual assets (to be determined by a presidential decree) in cold wallet storage, (d) have an insurance plan or set aside reserves to comply with the responsibility in the event of computer hacking or network crash, and (e) maintain records of virtual asset transactions for fifteen years to enable tracking and verification of transaction history."

Regarding the regulations on unfair transaction activities, the Act "prohibits improper use of undisclosed material information, manipulation of market prices and fraudulent transaction activities (false reporting, intentional omission, etc.) while restricting VASPs from transacting self-issued virtual assets."

In addition, VASPs are required to regularly monitor "abnormal activities" such as transactions involving "extreme volatility in prices and volumes" and take appropriate measures to ensure user protections. VASPs must immediately report suspicious activity to the financial and investigative authorities.

The Act also establishes a "clear legal foundation conferring the supervisory and sanctions authority to the FSC." In particular, unfair transaction activities are subject to "minimum imprisonment of one year or a fine of at least three times and up to five times of unfairly gained profits. Gains from unfair transaction activities will be confiscated, and when unable to do so, authorities will pursue collection of an equivalent amount."

The newly enacted law is expected to go into effect in July 2024, one year after promulgation

The measures include:

(i) establishing a regulatory framework on the issuance and distribution of security tokens to permit security token offerings and to promote development of a safe secondary market; and

(ii) improving foreign investors’ access to capital markets through abolishment of the foreign investors’ registration system and phased expansion of English disclosure requirement to boost the global dynamism in domestic capital markets.