South Korea has developed a comprehensive regulatory framework for cryptocurrencies, aiming to protect investors and ensure market stability. Here's an overview of the key policies.
🇰🇷 Key Regulatory Developments
1. Virtual Asset User Protection Act (VAUPA) – Effective July 19, 2024
This landmark legislation establishes South Korea's first comprehensive legal framework for the crypto sector. It mandates that Virtual Asset Service Providers (VASPs), such as exchanges and wallet services, implement robust safeguards:
❄️ At least 80% of user deposits must be stored in cold wallets.
❄️ User funds must be segregated from the platform's assets.
❄️ Platforms are required to maintain insurance or reserve funds to cover potential losses.
❄️ Unfair trading practices, including market manipulation and insider trading, are
prohibited.
❄️ The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have
the authority to inspect and penalize non-compliant VASPs.
2. Cross-Border Transaction Regulations – Effective H2 202
In response to significant foreign exchange-related crimes, South Korea plans to regulate cross-border crypto transactions starting in the second half of 2025. Businesses involved in such transactions will be required to:
☄️Register with relevant authorities.
☄️Report transactions to the Bank of Korea monthly.
☄️Implement Know Your Customer (KYC) protocols and maintain real-time transaction
monitoring systems.
3. Public Sector Transparency Initiatives
To enhance accountability, approximately 5,800 public officials are now required to declare their cryptocurrency holdings. Major exchanges are collaborating to link user accounts with the government's public registry, facilitating asset declarations.
4. Enhanced Enforcement Against Illicit Activities
The Joint Virtual Asset Crime Investigation Unit, established in 2023, has been upgraded to a permanent department. This unit is tasked with investigating and combating illegal activities within the crypto sector.
⚖️ Regulatory Philosophy
South Korea employs a "positive regulation" approach, where businesses must obtain explicit permission for activities not clearly defined in existing laws. While this ensures legal clarity, it has been critiqued for potentially hindering innovation and driving crypto enterprises abroad.
📊 Market Impact
As of November 2024, over 15.5 million South Koreans were engaged in cryptocurrency investments, reflecting the sector's significant growth. However, the stringent regulatory environment has led some crypto firms to relocate to more favorable jurisdictions.
South Korea's evolving crypto policies aim to balance investor protection with market innovation. While the regulatory landscape is becoming more structured, the challenge remains to foster a dynamic crypto ecosystem within a secure framework.