South Korea is ushering in a robust new era for its digital asset market, as the National Assembly recently approved a comprehensive reform aimed at significantly tightening the regulatory framework for crypto service providers. These sweeping changes are designed to enhance market integrity, bolster anti-money laundering (AML) efforts, and safeguard users within the rapidly evolving crypto landscape.
Stricter Licensing and Expanded Scrutiny for VASPs
The core of the reform involves a substantial amendment to the Act on Reporting and Use of Specific Financial Transaction Information, a critical component of South Korea’s AML strategy for digital assets. Under the new rules, the entry requirements for Virtual Asset Service Providers (VASPs) will become considerably more stringent. Regulators will now extend background checks beyond just company executives to include major shareholders, ensuring a broader scope of accountability. Furthermore, the list of disqualifying offenses has been significantly expanded, moving beyond traditional financial crimes to encompass serious violations such as drug trafficking, tax evasion, fair trade infringements, and serious economic offenses, alongside violations of the country's crypto user protection laws. The Financial Intelligence Unit (FIU) is also granted enhanced authority to evaluate a firm's financial health, internal controls, legal history, and overall credibility when considering license applications.
Conditional Approvals and Enhanced Accountability Measures
To foster a more adaptive regulatory environment, the new framework introduces the possibility of granting conditional crypto licenses. This innovative approach allows the FIU to impose specific requirements on companies, directly addressing potential money laundering risks or user protection concerns identified during the licensing process. Another significant provision closes a critical loophole concerning former financial sector employees; the FIU will now be mandated to notify a company's CEO if a former employee faces sanctions for AML breaches. Companies, in turn, must relay this information to the individual and maintain proper records, ensuring greater transparency and accountability across the industry.
Potential Ownership Limits for Crypto Exchanges
Beyond the immediate licensing reforms, South Korea’s financial regulator, the Financial Services Commission (FSC), is actively exploring additional measures to further stabilize the market. The FSC has voiced support for imposing ownership limits on crypto exchanges, proposing to cap major shareholder stakes at between 15% and 20%. This initiative stems from the view that crypto exchanges should be recognized as essential market infrastructure, akin to traditional stock exchanges, rather than merely private enterprises. While this proposal, part of the broader planned Digital Asset Basic Act, has faced some opposition from industry operators, the FSC's stance indicates a strong commitment to implementing stricter governance rules to ensure the long-term stability and fairness of the crypto market.
