Tightening the Grip: South Korea‘s Regulatory Push
The landscape of cryptocurrency in South Korea is undergoing a significant transformation. The National Assembly has recently approved an amendment to the country’s core anti-money laundering (AML) legislation, the Act on Reporting and Using Specified Financial Transaction Information. This move signals a resolute effort by regulators to tighten their grip on the crypto market, impacting both virtual asset service providers (VASPs) and their shareholders.
Broader Scrutiny and Enhanced Vetting
The amendment introduces several key changes. Perhaps most notably, regulators will now cast a wider net when vetting crypto firms seeking to operate in South Korea. This includes a more in-depth examination of major shareholders, alongside the usual scrutiny of company executives. The scope of red flags, which can disqualify a company from obtaining a license, has also expanded beyond traditional financial crimes. Offenses such as drug trafficking, tax evasion, and violations of fair-trade practices now fall under the regulator’s purview.
The Financial Intelligence Unit (FIU) will have increased discretion in granting licenses. They can now evaluate a firm’s operational capacity, focusing on its financial stability, internal controls, legal history, and overall credibility. This increased authority allows the FIU to take a more holistic approach when assessing a VASP’s suitability to operate. Furthermore, the ability to grant conditional licenses will allow the FIU to address potential risks associated with money laundering and user protection.
The new regulations also seek to close loopholes in the current framework. One notable provision addresses enforcement against former financial industry employees. The FIU will now be required to notify a firm’s chief executive if a former employee is sanctioned for AML violations. This fosters greater transparency and accountability within the industry.
In a related development, South Korea‘s financial watchdog is exploring ownership limits for crypto exchanges. The Financial Services Commission (FSC) is considering capping major shareholders’ stakes in exchanges, with the goal of aligning them more closely with securities markets. FSC Chair Lee Eog-weon emphasized that exchanges should be treated as market infrastructure, implying stricter governance rules are coming. This proposal has faced some pushback, but the FSC’s stance suggests it’s likely to move forward.
These regulatory changes could have a significant impact on the South Korean crypto market. They may lead to greater stability, reduce the risk of illicit activities, and increase investor confidence. However, stricter requirements could also make it more difficult for new exchanges to enter the market and may place a burden on existing players. The implementation details and industry guidance are anticipated to be finalized ahead of the law’s entry into force.
