Key Takeaways
- The FSC plans to collaborate with other government agencies to ensure the new framework aligns with global regulatory trends.
- The new regulatory measures are expected to be drafted by mid-2025,ย
South Koreaโs Financial Services Commission (FSC) has initiated discussions on the second phase of its crypto regulatory framework, aiming to address gaps in the existing system and enhance investor protection.
This was a key agenda item at the FSCโs Virtual Asset Committee meeting on January 15, as reported by local media outlets. The new regulatory measures are expected to be drafted by mid-2025.
The second phase will expand on the Virtual Asset User Protection Act, which was enacted in July 2024. The initial legislation introduced stricter measures for cryptocurrency exchanges, including a requirement for service providers to store at least 80% of user deposits in cold wallets, separate from their operational funds. It also addressed unfair trading practices and set penalties for violations.ย
The upcoming framework will delve into additional areas, including the regulation of stablecoins, asset issuance, disclosures, and market entry requirements.
Kim So-young, Vice Chairman of the FSC, highlighted the importance of adopting a holistic approach to regulation. โWe are officially beginning discussions on the second phase of the law. A comprehensive and systematic approach encompassing businesses, markets, and users is necessary,โ Kim said, emphasizing the need to balance innovation with user protection.
One of the most anticipated aspects of the new framework is the potential introduction of corporate cryptocurrency trading accounts.
ย Although such accounts are not formally banned, banks have refrained from issuing them due to regulatory ambiguities. Kim stated that the matter has undergone extensive review through 12 subcommittee and task force discussions.
โThe issue of allowing accounts for corporations has undergone extensive review. We will report the results soon and proceed with the subsequent steps promptly,โ Kim noted.
If approved, corporate accounts are likely to be introduced gradually, starting with non-profit organizations before expanding to other entities. This move is expected to encourage greater institutional participation in the crypto market, which is currently dominated by retail investors using verified real-name accounts.
The FSC also plans to explore broader initiatives, including the potential approval of cryptocurrency exchange-traded funds (ETFs) and the issuance of security tokens. Jeong Eun-bo, Chairman of the South Korea Exchange, recently stated that the exchange aims to benchmark international practices and explore new areas in the capital market, signaling the countryโs openness to innovative financial instruments.
Meanwhile, South Korean regulators are dealing with ongoing compliance issues in the crypto industry. The FSC is expected to meet on January 16 to discuss punitive measures against the local exchange Upbit, which has been accused of at least 500,000 Know Your Customer (KYC) breaches. Such cases underscore the urgency of establishing a robust regulatory framework to protect users and maintain market integrity.
The FSC also intends to tackle illegal activities linked to cryptocurrencies, such as tax evasion and unauthorized mining operations. In recent years, authorities have uncovered significant revenue leakages and incurred losses from electricity theft tied to crypto mining.
As part of its broader efforts, the FSC plans to collaborate with other government agencies to ensure the new framework aligns with global regulatory trends. Vice Chairman Kim noted that major economies are accelerating their own regulatory developments, making it imperative for South Korea to act swiftly to avoid falling behind.
โThis is a rapidly changing market with mixed feelings of optimism and uncertainty. South Korea must prepare to adapt and move forward in a way that balances innovation with investor safety,โ Kim added.
