"Major Functions Such as Listing, Trading, and Custody Are Concentrated in One Place"
"Strengthening Internal Controls and Prohibiting Concurrent Businesses Are Needed in the Basic Act"
It was pointed out that conflicts of interest in virtual asset exchanges arise because major functions such as listing, trading, and custody are concentrated in one place. Experts suggested that to resolve these issues, the Digital Asset Basic Act should include provisions such as prohibiting concurrent businesses, disclosure obligations, and establishing internal control standards.
On the 24th, the 3rd session of the National Assembly forum for the enactment of the Digital Asset Basic Act, titled "Measures to Resolve Conflicts of Interest in Digital Asset Exchanges," was held at the 8th conference room of the National Assembly Members' Office Building. The event was hosted by the Democratic Party's National Assembly Committee on Political Affairs and organized by the Korea Fintech Industry Association. This forum is the third of six planned sessions for the enactment of the Digital Asset Basic Act.
Ryu Kyung-eun, a professor at Korea University Law School and the day's presenter, explained that the cause of conflicts of interest in virtual asset exchanges is the excessive concentration of functions. He stated, "Virtual asset exchanges perform the roles of securities firms, the Korea Exchange, and the Korea Securities Depository all at once," adding, "Ultimately, the damage caused by conflicts of interest affects the entire market."
To prevent this, Professor Ryu explained that prohibiting concurrent businesses would be the most effective method. He said, "While responding in line with the Capital Markets Act, a systematic classification of businesses reflecting the characteristics of the virtual asset market is necessary," and gave examples such as "'trading platform operation,' 'trading and brokerage,' 'discretionary management, evaluation, and advisory'?dividing businesses directly related to virtual asset exchanges or those related to investors."
He also argued that improvements to the asset custody system are necessary. He pointed out, "Unlike money, the Virtual Asset User Protection Act does not require virtual assets to be stored with a separate management institution," adding, "If embezzlement, breach of trust by virtual asset exchange employees, bankruptcy, or hacking occurs, it becomes difficult to protect the assets."
To improve this, Professor Ryu proposed solutions including ▲mandatory asset consignment ▲strengthened supervision ▲explicit responsibility or burden of proof in case of virtual asset loss ▲granting priority repayment rights to claims for the return of virtual assets.
He also explained that regulations related to listings need to be legislated. Currently, in South Korea, the listing and delisting of virtual assets are left to self-regulation under the "Common Guidelines for Trading Support Review" by the Digital Asset Exchange Joint Council (DAXA). He said, "Although guidelines exist, they are not clear," and added, "Standards should be clarified, and responsibility for poor listings should be imposed on virtual asset exchanges."
Next, Oh-hoon Kwon, a lawyer from Cha & Kwon Law Office and the second presenter on the topic of "Cases of Conflicts of Interest in Overseas Virtual Asset Exchanges," also explained that conflicts of interest arise due to vertical integration in virtual asset exchanges. He said, "Virtual asset exchanges perform multiple functions separated in traditional finance on a single platform," adding, "While convenient and innovative, misuse of customer assets and conflicts of interest are intensifying."
However, he noted, "Due to the characteristics of virtual assets being traded 24/7 globally, there is a general acceptance of vertical integration itself," but emphasized, "Even if allowed, transparent disclosure must be conducted concurrently."
He further explained that globally, regulations continue with measures such as ▲segregation of customer assets (custody) ▲prevention of insider trading and market manipulation ▲control of proprietary trading and fund transfers between affiliates ▲structural separation if necessary. He said, "Globally, strict segregation of customer assets is generally emphasized regarding conflicts of interest," and added, "While Korea has proactively introduced measures against insider trading and price manipulation, other countries are also adopting similar regulations."
Panelists at the discussion also agreed on the necessity of customer asset segregation, internal controls, and disclosure obligations. Jung Seok-moon, director of Prestory Research Center, said, "Conflicts of interest occur not only in virtual assets but also in traditional finance," adding, "The financial sector resolves these through internal controls and disclosures, which the virtual asset market can also refer to."
On the other hand, there were arguments for viewing the virtual asset market with clearer regulations. Jung Gu-tae, CEO of Infinite Block, emphasized, "Since the virtual asset market shares characteristics similar to the capital market, benchmarking is necessary," and stressed, "Even in the well-regulated capital market, various issues have occurred, so the virtual asset market seems to require a stricter regulatory framework."
Finally, Kim Sung-jin, director of the Virtual Asset Division at the Financial Services Commission, responded, "In the second phase of the Basic Act legislative process, issues related to conflicts of interest and custody should balance user protection and efficiency," adding, "We will refer to overseas cases to enhance global consistency."
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