'Business Closure' Virtual Asset Operators Neglect Deposit and Coin Returns

Most Businesses and Majority of Employees Resign
Return Procedures Slow...High Withdrawal Fees Imposed
Financial Authorities Conduct Inspections and Take Strict Measures for Legal Violations

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It has been confirmed that a significant number of virtual asset service providers (VASPs) that recently ceased operations did not properly carry out the procedures for returning customer assets such as deposits or entrusted virtual assets. In particular, with the enforcement of the Virtual Asset User Protection Act in July this year, the regulatory compliance burden is expected to increase, potentially leading to a rise in the number of businesses closing down, making it necessary for users to exercise caution.

The Financial Intelligence Unit (FIU) of the Financial Services Commission and the Financial Supervisory Service announced on the 6th the results of an emergency on-site inspection conducted from the 20th to the 23rd of last month on 10 VASPs that have ceased or suspended operations.

The inspection revealed that among the seven businesses that ceased operations, asset returns to users were not properly executed.

The financial authorities stated, "Although these businesses claimed to have established dedicated channels for asset returns to users, most of them had only one or two employees remaining, including the CEO, with all others having resigned, resulting in delays in actively guiding users for asset returns."

Among them, three businesses were found to be inadequate in user guidance, such as providing phone notifications only to users with assets exceeding 1 million KRW. It was also confirmed that withdrawals were supported only to overseas exchanges and personal wallets, while transfers to domestic exchanges were restricted. Additionally, high withdrawal fees were imposed, making it difficult for users holding assets less than the fee amount to receive returns at all.

Regarding the three businesses that suspended operations, the financial authorities checked the reasons for suspension and plans for business normalization, stating that all three suspended operations to improve services. One of these companies resumed operations after suspending business for more than five months when the inspection was conducted, and the other two, which had been suspended for seven and eight months respectively, expressed intentions to resume operations within June.

The financial authorities stated that based on the inspection results, they will actively consider conducting examinations on businesses that inadequately comply with the Act on Reporting and Using Specified Financial Transaction Information or fail to properly return assets, and will take strict measures against any illegal activities. They also added that if any illegal acts such as unauthorized use of unreturned user assets are detected, they will promptly notify and report to investigative agencies to respond strictly.

Furthermore, improvements to the system to prevent user damages resulting from business closures will be pursued. The FIU plans to promptly finalize amendments to the supervisory regulations under the Act on Reporting and Using Specified Financial Transaction Information, aiming to mandate that businesses prepare and operate procedures for handling business closures in advance.