South Korea is moving to help cryptocurrency users recover their funds from exchanges that have shut down or suspended operations. 

The government has backed a plan to establish the Digital Asset User Protection Foundation to ensure that customers of failed exchanges can reclaim their money.

Addressing the Crypto Exchange Crisis

The initiative is spearheaded by the Digital Asset Exchange Joint Consultative Group (DAXA), a self-regulatory organization, with approval from the Financial Services Commission (FSC). The foundation is expected to begin its work as early as October.

[Press Release] The Financial Services Commission will authorize the digital asset industry’s plan to establish an organization that will be charged with the task of protecting users’ assets on September 26. https://t.co/yHtqPksemH

— Financial Services Commission – FSC Korea (@FSC_Korea) September 25, 2024

In recent years, South Korea has recorded a number of cryptocurrency exchanges shutting down or halting operations. Out of 22 exchanges in the country, 10 have closed entirely, while three others have suspended their services. This has left many users unable to access their funds.

The FSC noted that a significant number of users’ assets, including virtual currencies and cash, have been stuck in these non-functioning platforms. With private keys to these assets held by the now-defunct exchanges, there has been growing concern over these funds’ safety and eventual return.

The Digital Asset User Protection Foundation aims to resolve this issue by consulting with the affected exchanges and transferring users’ funds and virtual assets to the foundation itself.

Once the assets are in the foundation’s custody, they will be further transferred to a bank, ensuring that users’ cash is securely stored. A functional crypto exchange will be selected to store and manage the virtual assets.

Coordinated Effort by Authorities

The South Korean government is taking a hands-on approach to this initiative. Alongside financial authorities, the foundation will include representatives from banks, still-operating exchanges, and experts from the private sector.

This ensures that all aspects of asset recovery are handled efficiently. The foundation will also notify users about how and when they can retrieve their funds.

This move is in line with the Virtual Asset User Protection Act, enacted in July 2023 by South Korea. The law mandates that cryptocurrency exchanges separate customer assets from their own and requires customer deposits to be stored in banks for additional security.

1/7 On 30th June, the South Korean National Assembly passed the Virtual Asset User Protection Act, which establishes key safeguards for virtual asset users. What does the Act mean for digital asset players in Korea 🇰🇷?

— Chainalysis (@chainalysis) July 3, 2023

Similarly, Japan implemented strict regulations after the Mt. Gox exchange collapsed in 2014, ensuring better protection and recovery systems for users affected by exchange failures.