Travel Regulations for Cryptocurrency in South Korea: A Comprehensive Guide for 2024
Starting in 2024, South Korea has introduced a comprehensive regulatory framework for Virtual Asset Service Providers (VASPs). The new regulations, aimed at enhancing user protection, transaction transparency, and market discipline, are a significant step in the government's policy agenda to establish a robust infrastructure and regulatory framework for digital assets.
Strengthening User Protection
Under the new regulations, VASPs are required to maintain robust anti-money laundering (AML) and know-your-customer (KYC) systems. These systems are designed to verify identities, assess transaction risks, and monitor suspicious activities, thereby protecting users from fraud and illegal activities. VASPs must also implement strong risk management and cybersecurity measures to guard against cyber threats and ensure the safety of customer assets and personal data.
To prevent abusive practices, such as "listing pumps" that might harm investors, there are rules restricting volatile listings.
Enforcing Financial and Operational Transparency
VASPs are required to meet strict financial disclosure requirements, including demonstrating sufficient capital and liquid assets to cover potential losses. They must also enhance accounting transparency and segregate client assets from company assets to prevent misuse. The government has also imposed mandatory corporate governance disclosures on certain companies, increasing oversight on asset management and accountability.
Compliance with the FATF "Travel Rule" requires VASPs to share originator and beneficiary data for virtual asset transfers, enhancing traceability and anti-money laundering efforts.
Establishing Market Integrity
Licensing terms for VASPs are tightly controlled. Companies must obtain licenses granted only to companies incorporated under South Korean law, proving regulatory compliance, including AML/KYC, financial strength, and operational integrity. The license validity and extension periods are clearly defined, with transition periods for existing operators to comply with new standards by the end of 2024 or mid-2025.
Regulations also extend to non-profit corporations engaging in virtual asset sales, which face specific transparency and internal control requirements, including external audits and immediate liquidation of donated assets into cash to prevent misuse. New guidelines aim to mitigate conflicts of interest and prevent market misconduct by non-profit and other virtual asset sellers.
Key Regulatory Bodies
The Financial Services Commission (FSC) is the main regulatory body responsible for formulating policies and supervising VASPs in South Korea under the 2023 Act. Another important institution is the Korea Financial Intelligence Unit (KoFIU), which serves as an institutional link between financial institutions and law enforcement agencies.
All VASPs, including foreign ones, are required to report their business activity to the KoFIU prior to the commencement of their business operations.
Prohibited Practices and Compliance Measures
VASPs are prohibited from improper use of undisclosed material information, manipulating market prices, fraudulent transaction activities, and self-issued virtual asset transactions. They must keep virtual assets owned by their customers separately from the virtual assets in their possession.
VASPs must comply with Anti-Money Laundering (AML) requirements, including appointing a money laundering reporting officer, developing and implementing internal AML policies and procedures, conducting risk assessments, and keeping records. They must also monitor abnormal activity and immediately report it to financial and investigative authorities.
A certain proportion of virtual assets (to be determined by a presidential decree) must be stored in cold wallet storage by VASPs. VASPs shall maintain records of virtual asset transactions for fifteen years to enable tracking and verification of transaction history.
The Act on Reporting and Using Specified Financial Transaction Information is the primary act regulating VASP activity in South Korea. The South Korean government's Financial Services Commission (FSC) plans to permit issuance and circulation of security tokens.
Virtual asset service providers (VASPs) in South Korea are required to manage customer's virtual asset transaction deposits separately from their own assets. VASPs doing business with Koreans must file a report with KoFIU to carry out legal activities in the country. The new regulation in South Korea, effective from 2024, targets protection of virtual assets, regulation of unfair trade practices, and financial authorities' supervision of the virtual asset market and business operators.
- VASPs in South Korea are required to maintain strong cybersecurity measures to protect customer assets and personal data.
- To protect investors from abusive practices, there are rules restricting volatile listings in the virtual asset market.
- VASPs must meet strict financial disclosure requirements, including demonstrating sufficient capital and liquid assets to cover potential losses.
- Compliance with the FATF "Travel Rule" requires VASPs to share originator and beneficiary data for virtual asset transfers, enhancing traceability and anti-money laundering efforts.
- All Virtual Asset Service Providers (VASPs), including foreign ones, are required to report their business activity to the Korea Financial Intelligence Unit (KoFIU) prior to the commencement of their business operations.
- The South Korean government's Financial Services Commission (FSC) plans to permit issuance and circulation of security tokens, a developments seen in the broader context of policy-and-legislation and technology advancements in the finance, banking-and-insurance, and personal-finance sectors, with potential implications for the industry, business, politics, and general news.
