Two months after the new Virtual Asset User Protection Act came into effect, South Korea’s Financial Supervisory Service (FSS) has warned crypto companies of serious consequences for illegal digital asset transactions.

FSS chief Lee Bok-hyun held a meeting with 16 virtual asset operators, urging them to comply with the new legislation, which came into effect on July 19. Bok-hyun warned that cryptocurrency scammers could now spend their entire lives behind bars if their illegal cryptocurrency transactions exceed $4 million.

Bok-hyun recommended that cryptocurrency exchanges improve their monitoring systems and regularly communicate with regulatory authorities. The official hinted that the government plans to make adjustments to the law in the future. The FSS will continue to consult with other regulators and industry companies on the issue.

The Virtual Asset User Protection Act was created in the wake of the collapse of the Terra crypto project in May 2022. Total losses amounted to more than $450 billion, prompting South Korean lawmakers to fill the “gaps” in cryptocurrency regulation and strengthen investor protection.

The new rules require cryptocurrency exchanges to implement robust monitoring mechanisms to detect suspicious activity, which the platforms are required to report to financial authorities. The law also prohibits insider trading, manipulation of market prices, and unfair trading practices. In addition, crypto exchanges must keep detailed trading records, including information in order books. This data is crucial for authorities to identify unfair trading.

In July, the FSS introduced a 24/7 surveillance system for local cryptocurrency exchanges. The system incorporates the Korea Exchange (KRX) criteria to help track suspicious activity in the crypto market.