A South Korean court has ruled that an exchange can still fall under virtual asset business rules after operations have stopped if it continues to hold and manage customer coins that were never returned. The decision centered on CP Labs, which was still keeping user digital assets valued at about $10.8 million after shutting down.
The court upheld a Financial Services Commission order requiring those assets to be moved to the Digital Asset Protection Foundation. In doing so, it rejected CP Labs’ argument that the regulator lacked a legal basis for the measure.
Court treats residual asset handling as business activity
The court said that retaining and managing customer digital assets after a shutdown was not outside the scope of regulated activity. It viewed the work as part of winding up the company’s existing exchange business and handling remaining affairs tied to that business.
Because of that, the court found the conduct could still be regarded as activity carried out as a business under South Korea’s Act on Reporting and Using Specified Financial Transaction Information. That meant the exchange’s post-shutdown custody of user assets did not remove it from the legal framework applied to virtual asset businesses.
Dispute focused on FSC authority
The Financial Services Commission had ordered CP Labs to transfer the user assets it still held to the Digital Asset Protection Foundation as a user-protection measure. CP Labs challenged that order, arguing there was no legal basis for the regulator to require the transfer.
The court disagreed. It said the FSC had authority under the Virtual Asset User Protection Act to order steps related to the custody and management of user assets, as well as measures connected to business closure. On that basis, it upheld the regulator’s action.
User protection and market trust cited in ruling
In its reasoning, the court said moving the assets to a foundation supervised by the FSC would better serve the protection of users. It also said the arrangement would help maintain trust in the market.
The ruling further noted CP Labs’ lack of active cooperation with requests from the FSC. The court treated that as a contributing factor in the decision to support the transfer order.
What the decision establishes
The judgment clarifies that shutting down an exchange does not automatically end its regulatory obligations if customer crypto remains under its control. Continued custody and management of those assets can still be treated as part of the business for legal purposes.
The confirmed next step from the ruling is that the FSC’s transfer order stands, meaning the assets are to be placed with the Digital Asset Protection Foundation under the framework the court said was intended to safeguard users.
Source: en.bloomingbit.io