Updating Crypto Restrictions in South Korea: Steps to Adapt to the Shifts (October 2021 Edition)
South Korea has implemented a series of measures aimed at strengthening the anti-money laundering (AML) and counter-terrorist financing (CTF) regulations for virtual asset service providers (VASPs). The changes, outlined in the Enforcement Decree of the Act on the Reporting and Use of Specific Financial Transaction Information, came into effect in March 2021.
VASPs in South Korea, which include cryptocurrency exchanges, custodian wallet providers, and Initial Coin Offering (ICO) projects, are now required to adopt comprehensive AML and Know Your Customer (KYC) controls. They must also strengthen transaction risk assessment and monitoring systems, ensure strict customer identity verification, and establish continuous suspicious activity reporting mechanisms.
To comply with these new regulations, South Korean VASPs need to:
- Develop and implement robust AML/CTF policies consistent with global Financial Action Task Force (FATF) standards. This includes preventing the illicit use of virtual assets such as stablecoins and unhosted wallets.
- Comply with the Travel Rule, a FATF recommendation that involves securely sharing originator and beneficiary information for virtual asset transfers.
- Maintain clear organizational structures that support compliance, transparency, and segregation of client assets from company assets.
- Prepare for enhanced supervisory oversight and enforcement as South Korea strengthens its national AML/CTF framework in line with international best practices.
In addition, VASPs are expected to meet any capital and liquidity adequacy requirements imposed by Korean regulators, as part of the licensing criteria. They must also register an authorized company bank account and provide customers with their own real-name accounts with the same bank.
These measures, which were initially introduced by the Financial Services Commission (FSC) in 2018, were not mandatory until recently. The new law creates a safer economic environment, with financial regulators finally gaining access to data regarding crypto transactions.
It is worth noting that only the four biggest Korean exchanges—Bithumb, Upbit, Coinone, and Korbit—had implemented these measures prior to the law's enforcement. All other crypto service providers in South Korea must now transform their AML/KYC systems to comply with the new regulations.
As the global focus shifts towards stablecoin risks and Decentralised Finance (DeFi) platforms, South Korean VASPs are advised to stay updated on any further regulatory guidance or amendments issued by Korean authorities in alignment with FATF updates. Collaboration with financial authorities and internal employee training on compliance obligations will also be essential.
This preparation aims to ensure that South Korean VASPs can meet the revised AML/CTF requirements, mitigate financial crime risks, and continue operating legally and credibly within the evolving regulatory landscape.
- South Korean virtual asset service providers (VASPs), such as those dealing with stablecoins and unhosted wallets, must develop and implement AML/CTF policies in line with global Financial Action Task Force (FATF) standards to adhere to the new regulations.
- To function legitimately and credibly within the changing regulatory landscape, South Korean VASPs should stay updated on any further adjustments or guidance issued by Korean authorities in response to evolving risks in the areas of stablecoins and Decentralised Finance (DeFi).
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