The country's top financial watchdog warned against illegal transactions of virtual assets, calling on cryptocurrency exchanges and other virtual asset firms to strictly follow rules.

The warning came about two months after the country enacted the new Virtual Asset Users Protection Act, allowing the maximum penalty of life imprisonment for financial gains of more than 5 billion won ($3.75 million) through illegal transactions of virtual assets.

"The financial government will continue to successfully implement the virtual asset users act by carrying out its oversight, review and inspection duties while placing top priority on user protection," said Lee Bok-hyun, chief of the Financial Supervisory Service.

"Also, it will closely monitor sudden rises or drops of newly listed coins or the spread of unconfirmed rumors, and take stern punitive measures under the principle of zero tolerance by focusing all its investigative resources when suspicions of illegal transactions are detected," he added.

Lee made the remarks in a meeting with the chief executive officers of 12 cryptocurrency exchanges and four cryptocurrency wallet providers.

The FSS earlier said it would launch an inspection of two cryptocurrency exchanges where "unusual cases" had been detected, while three other exchanges and one wallet provider were also set to undergo regular inspection.

"The implementation of new regulations was a big challenge for us, but we were able to successfully enact the law, thanks to the active cooperation of the industry," Lee told the meeting.

He said the government will continue to consult closely with businesses and related agencies to set the direction of what he called a "second-phase" revision.

"I firmly believe close cooperation with the financial government will help overcome difficulties facing the virtual asset market and develop a market that is trusted by users," Lee added. (Yonhap)