Stricter Cryptocurrency Licensing Framework Introduced in South Korea for Platforms and Stakeholders
South Korean authorities expand their oversight powers to examine stakeholders, financial records, and operational frameworks as the nation restricts entry to crypto markets.
The National Assembly of South Korea has given its approval to a comprehensive revision of the nation's cryptocurrency licensing framework, introducing more stringent entry criteria for virtual asset service providers (VASPs) while broadening regulatory oversight to encompass controlling stakeholders.
During a Thursday legislative session, members of parliament voted to pass amendments to the Act on Reporting and Using Specified Financial Transaction Information, which serves as a fundamental pillar of the country's Anti-Money Laundering (AML) regulatory structure for digital currencies. The committee substitute legislation received approval during the plenary meeting and is anticipated to become operational six months following the law's official enactment.
The updated regulations broaden the scope of background investigations for cryptocurrency companies seeking to conduct business within South Korea. Regulatory authorities will now examine not only corporate leadership but also significant shareholders. The catalog of disqualifying factors has been expanded as well, reaching beyond violations related to financial crimes to encompass infractions including drug trafficking operations, tax evasion schemes, violations of fair-trade regulations, severe economic offenses, and violations of the nation's cryptocurrency user protection legislation.
Additionally, the legislative changes provide the Financial Intelligence Unit (FIU) with enhanced powers in determining which entities receive licensing approval. The regulatory body can now adopt a more comprehensive perspective on a company's operational capabilities, examining its financial standing, internal governance mechanisms, legal compliance history, and general trustworthiness.
Conditional licensing system authorized for South Korean crypto operators
Regulatory authorities will gain the ability to issue licenses with specific conditions attached, providing the FIU with the capacity to establish requirements designed to mitigate money-laundering threats and protect user interests.
An additional clause addresses a frequently criticized regulatory gap concerning enforcement measures against former employees of financial institutions. The FIU will now have the obligation to inform a company's chief executive officer whenever a former staff member faces sanctions for AML rule violations, with organizations required to transmit the notification to the affected individual and maintain associated documentation.
Specific implementation protocols and industry guidance materials are anticipated to be completed prior to the legislation taking effect, with the FIU operating under the supervision of the Financial Services Commission responsible for finalization, pending approval from the National Assembly.
Ownership restrictions for cryptocurrency exchanges under consideration in South Korea
Earlier this week on Wednesday, South Korea's financial regulatory authority expressed support for implementing ownership restrictions on cryptocurrency exchanges, bringing them into closer alignment with securities market standards as part of initiatives outlined in the proposed Digital Asset Basic Act. Lee Eog-weon, who chairs the Financial Services Commission, indicated that exchanges should be regarded as essential market infrastructure components rather than conventional private sector enterprises.
These statements emerge as regulators evaluate a recommendation to limit the ownership stakes of major shareholders in exchange platforms to approximately 15% to 20%. The concept has encountered resistance from exchange platform operators and generated concerns among members of the governing political party, but Lee's public statements represent the most definitive indication to date that the FSC intends to proceed with implementing more rigorous governance standards.