Learn about how crypto assets are regulated in South Korea and how they’ll change in the future
On June 30, 2023, the Financial Services Commission (FSC) of South Korea passed a new Act aimed to ensure crypto user protections, transaction transparency, and market discipline, which will be implemented in 2024. This is a key step in the government’s policy agenda to establish infrastructure and a regulatory framework for digital assets.
At the moment, Virtual Asset Service Providers (VASPs), have been regulated under the Act on Reporting and Using Specified Financial Transaction Information in South Korea since March 2021. However, existing law does nor cover regulation of unfair trade practices and protection of assets/users. Additionally, the FSC specified this Act does not allow authorities to more effectively supervise and sanction VASPs and assist victims with relief measures. The latest Act, passed in 2023, intends to fill these gaps.
We at Sumsub have prepared this guide to help companies dealing in virtual assets in South Korea adjust to the new regulatory framework.
Virtual Asset Service Providers must comply with crypto regulations in South Korea. This includes entities providing the following:
The Financial Services Commission (FSC) is the main regulatory body responsible for formulating policies. Under the 2023 Act, the FSC has the authority to supervise and inspect VASPs and impose penalties.
Another important institution is the Korea Financial Intelligence Unit (KoFIU), which was created under the Financial Transaction Reports Act. The KoFIU serves as an institutional link between financial institutions and law enforcement agencies. Its duties include receiving Suspicious Transaction Reports (STRs) from financial institutions, analyzing them, and sending them to the respective law enforcement agencies.
VASPs doing business with Koreans must file a report with KoFIU in order to carry out legal activities in the country (i.e., register).
The Act on Reporting and Using Specified Financial Transaction Information is the primary act regulating VASP activity, which includes VASPs within the scope of regulated entities that have to comply with tAML regulations. This means that all VASPs, including foreign ones, are required to report their business activity to the KoFIU prior to the commencement of their business operations.
When it comes to reporting (registration), the following information should be submitted to the KoFIU:
The Commissioner of the KoFIU may not register a VASP for any of the following reasons:
VASPs shall take measures prescribed by Presidential Decree, such as managing each customer’s transaction details separately to comply with the duty to file a report.
VASPs should also comply with AML requirements, which include the following:
According to the Travel Rule, the following information should be sent from an originating VASP to the beneficiary VASP in relation to the originator and beneficiary of a transaction:
The originator VASP may also be asked to provide the following information if requested by the beneficiary VASP or the KoFIU:
This should be sent within three working days from the date of the request.
Suggested read: Travel Rule in South Korea
Now it’s time to talk about the new regulation that was introduced in South Korea in June 2023, which is expected to go into effect in one year. The Act mainly targets the three following areas:
When it comes to protection of virtual users, companies have to:
Regarding the regulation of unfair trade, VASPs are prohibited from:
VASPs also have to monitor abnormal activity (e.g., transaction volatility in prices and volumes). In case such activity is detected, companies have to immediately send a report to the financial and investigative authorities.
If unfair transaction activities are performed by VASPs, staff members are subject to minimum imprisonment of one year or a fine of at least 3-5 times the unfairly gained profits. All gains from such activities will be confiscated by government authorities.
To conclude, it’s clear that South Korea is actively developing a more comprehensive legal framework for virtual asset service providers. These include not only the aforementioned changes, but a myriad of other regulations, such as theFSC plan to permit issuance and circulation of security tokens,
This material will be updated when new regulations go into effect.
Yes, it is legal. Anyone in South Korea can own and use cryptocurrency. The government of South Korea ensures that virtual asset service providers make the transaction process safe through several guidelines and acts. Companies have to follow them and report all suspicious actions to government institutions in order to minimize the spread of criminal activity.
No, crypto is permitted and regulated by the South Korean government.