The National Assembly of South Korea has unanimously passed a revised version of the Special Financial Transactions Act. This legislation provides a clear regulatory framework for Virtual Asset Service Providers (VASPs) and officially legalizes the trading of crypto assets under policies that include Anti-Money Laundering (AML) compliance. Under the new law, cryptocurrency exchanges are now classified as financial institutions—a significant shift from their previous designation as information providers.
The regulations are scheduled to take effect one year after promulgation, with an additional six-month grace period to ensure compliance.
Key Provisions of the New Law
- Cryptocurrencies are formally recognized as a class of assets.
- Virtual assets are defined as valuable intangible assets.
The approval follows closely on the heels of India’s Supreme Court decision to lift the banking ban on cryptocurrency trading, a move that sparked optimism throughout the global crypto community given India’s population of over one billion.
South Korea’s Financial Services Commission (FSC) introduced the revised bill in November 2019. After passing through the National Assembly, the legislation is set to reorganize and formalize the country’s blockchain industry.
Regulatory Requirements for Businesses
According to the FSC’s official release, the new framework requires cryptocurrency businesses—including exchanges, trust companies, and custodial service providers—to comply with AML regulations. These entities must also complete Know Your Customer (KYC) procedures by the first quarter of 2021.
Specific obligations include:
- Regular reporting and registration with the Financial Services Commission.
- Mandatory use of real-name verified deposit and withdrawal accounts by users.
- Operator requirements including identity verification, clean criminal records, and certification under the Information Security Management System (ISMS).
The law also establishes penalties. Businesses operating without proper registration may face up to five years in prison or fines of up to 50 million Korean won. Financial institutions partnering with digital asset operators will also bear certain auditing responsibilities.
Similar regulatory concepts are already in place in other regions. For example, Taiwan’s recently implemented STO (Security Token Offering) framework imposes comparable requirements on exchanges dealing with security-like digital assets.
Industry Reactions
Simon Kim, CEO of Seoul-based blockchain incubator Hashed, expressed strong optimism:
Until now, South Korea’s cryptocurrency regulations have been marked by significant uncertainty. With the enactment of this new law, cryptocurrencies are officially recognized by the government as an asset class, and virtual asset operators can conduct business under a proper legal framework. I believe this is a major step forward for South Korea and will serve as a perfect testbed for global blockchain and cryptocurrency innovation.
Sunga Kim, CEO of Hanbitco—one of South Korea’s major cryptocurrency exchanges—highlighted the potential for reduced fraud:
We have established a foundation that will help eliminate the long-standing stigma of fraud in cryptocurrency trading and transform the industry into a transparent and trustworthy sector. With new capital inflows, the entire industry is poised to thrive.
Following the announcement, ICON (ICX), a leading Korean blockchain project, saw its token price surge by 25% before settling at around $0.37. The project currently ranks 39th in market capitalization.
Next Steps and Compliance Timeline
The revised bill now awaits final approval from South Korean President Moon Jae-in. Once signed, it will become part of the official legal system and is expected to take effect in March of next year. All cryptocurrency businesses must achieve full compliance by September 2021.
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Frequently Asked Questions
What does the Special Financial Transactions Act mean for crypto traders in South Korea?
This law provides legal clarity and protection for traders by recognizing virtual assets as legitimate financial instruments. It mandates real-name verification for accounts, enhancing security and reducing fraud.
How do South Korea’s new regulations compare to those in other countries?
South Korea’s approach aligns with global trends—emphasizing AML and KYC compliance—similar to frameworks in Japan and parts of Europe. It is more comprehensive than some emerging regulations but less restrictive than outright bans seen in a few jurisdictions.
What are the penalties for non-compliance?
Unregistered operations may lead to criminal charges, including imprisonment of up to five years or fines exceeding 50 million Korean won. Financial partners may also be subject to oversight responsibilities.
Will this encourage more institutional investment in South Korea’s crypto market?
Yes. By establishing clear rules and elevating exchanges to financial institution status, the law is likely to attract both domestic and international institutional investors seeking regulated environments.
How does this affect existing cryptocurrency exchanges?
Exchanges must now implement strict KYC/AML procedures, obtain ISMS certification, and register with regulators. Those already adhering to high standards may benefit from increased user trust.
Are decentralized platforms affected by this law?
The law focuses on regulated VASPs such as exchanges and custodians. The applicability to fully decentralized platforms remains unclear and may require further regulatory interpretation.
The passing of this bill marks a historic moment for South Korea’s cryptocurrency landscape, paving the way for sustainable growth and broader adoption under a structured legal framework.