Korea's Virtual Asset User Protection Act: What Exchange Users Should Know

Why the law was made

Before this law, Korean crypto exchanges were governed mainly by the Act on Reporting and Using Specified Financial Transaction Information, an anti-money-laundering law. It created registration, bank real-name accounts and transaction monitoring, but said little about how users' money and coins should be protected or how price manipulation should be punished. After the collapse of a large algorithmic stablecoin and the bankruptcy of a major overseas exchange in 2022, user protection legislation sped up. The Virtual Asset User Protection Act was promulgated in July 2023 and took effect a year later, on 19 July 2024. It is often called the 'phase one' law because it covers only user asset protection and unfair trading, leaving market-wide rules such as token issuance, disclosure and licensing for a later stage.

What exchanges must do with your money and coins

Won that users deposit is not held by the exchange itself. It must be placed with a custodian such as a bank and managed separately from the exchange's own assets. The exchange cannot use it, and if the exchange goes bankrupt or its registration is cancelled, the custodian is to repay users first. Exchanges pay users part of the income earned on these deposits as a deposit fee. For coins, the exchange must actually hold the same type and amount as users' balances and keep at least 80% of their economic value in cold wallets disconnected from the internet. For the portion kept in online wallets, it must carry insurance or mutual aid cover against hacks and system failures, or build up reserves.

• Won deposits: kept separately by a bank or other custodian
• Deposit fee: part of the income passed back to users
• Coins: same type and amount held, at least 80% in cold wallets
• Online portion: insurance, mutual aid cover or reserves

When deposits and withdrawals may be frozen

An exchange may not freeze users' coin deposits or withdrawals at will without good reason. It may do so only for reasons set out in law, such as system failures, hacks, or requests from courts, investigators or financial authorities, and it must tell users why. That is why suspension notices give reasons such as network maintenance, wallet upkeep or an outside request. The rule does not make suspensions disappear, though. When a coin's transfers stay frozen for a long time, its Korean price can drift far from overseas prices, so price gaps on coins with a suspension notice deserve extra caution.

Banned unfair trading and penalties

The act brings stock-market rules against unfair trading into the crypto market. Trading on material information that is not yet public, such as an upcoming listing or delisting; manipulating prices by trading with accomplices or with yourself to fake activity; and profiting by spreading false information are all banned. Exchanges are also restricted from trading coins they issued themselves. Violations can bring a prison term of at least one year or a fine of three to five times the illicit gain, administrative fines can be imposed as well, and penalties grow heavier with the size of the gain. Exchanges must monitor for abnormal trading at all times and report suspected unfair trading to the financial authorities.

• No trading on undisclosed material information
• No manipulation such as wash or matched trades
• No profiting from false information
• Exchanges must monitor and report abnormal trading

What the law does not protect

The act makes exchanges hold users' assets properly and run a fair market; it does not shield anyone from investment losses. Nobody compensates losses caused by falling prices, and coins are not covered by deposit insurance the way bank deposits are. The law applies to virtual asset service providers registered in Korea, so harm suffered at overseas exchanges not registered in Korea, in personal wallets or on decentralised services is hard to recover under it. Money lost in a fraudulent project does not come back automatically. If unfair trading cost you money, you can claim damages, but that means going to court, and proving the loss is not easy.

• Losses from falling prices are not compensated
• No deposit insurance
• Unregistered overseas exchanges, personal wallets and DeFi fall outside
• Damages require a lawsuit and proof

The next stage and open issues (as of October 2026)

The gaps left by the phase one law, including token issuance and disclosure, licensing of service providers and stablecoin rules, are being discussed for a so-called phase two law, the Digital Asset Basic Act. The government said in its July 2026 growth strategy that it would push the legislation, but as of October 2026 it has not passed the National Assembly. On corporate participation, under a step-by-step plan the Financial Services Commission announced in February 2025, sell-only trading by non-profits, exchanges and similar entities has been allowed since June 2025, while investment trading by listed companies and registered professional-investor corporations has not yet started. Taxation is set not by this act but by the Income Tax Act, which gives 1 January 2027 as the start date. All of this can change, so check the latest announcements.

• Issuance, disclosure, licensing, stablecoins: Digital Asset Basic Act, under debate
• Corporate sell-only trading: since June 2025 (non-profits, exchanges, etc.)
• Investment trading by listed and professional-investor firms: not yet
• Tax: Income Tax Act, scheduled for 1 January 2027

What users can check themselves

With an exchange you haven't used before, start by checking that its name appears on the Korea Financial Intelligence Unit's list of registered virtual asset service providers. Exchanges announce deposit fee rates and transfer suspensions in their notices, so it helps to turn on alerts. If you run into something that looks like unfair trading, use the Financial Supervisory Service's reporting channel; for fraud, go to the police. This site's Kimchi Premium Radar flags coins whose transfers are suspended on Korean exchanges, so you can see how a suspension notice shows up alongside the gap between Korean and overseas prices. CoinRadar Market Radar raises alerts for sharp moves across a Korean won market, but a sharp move does not mean manipulation, and the screen alone cannot reveal anyone's intent.

Summary and caution

The Virtual Asset User Protection Act makes exchanges keep users' won and coins separate and safe, and punishes trading on undisclosed information and price manipulation. It does not protect you from losses when prices fall, and harm suffered at providers not registered in Korea is outside its scope. The phase two law, corporate participation and the tax timetable are still in progress as of October 2026, so check the latest from the Financial Services Commission and Korea's National Law Information Center. This guide explains the rules; it is not legal or investment advice.