South Korea is advancing its efforts to strengthen cryptocurrency regulations, with the Financial Services Commission (FSC) planning to introduce a new set of rules by mid-2025. This second phase of the country’s crypto regulatory framework will focus on enhancing user protection, managing stablecoins, and overseeing crypto exchanges. Here’s a detailed look at the upcoming changes.
FSC Launches Phase Two of Crypto Regulation
According to The Block, the FSC has officially begun discussions on the second phase of its cryptocurrency regulatory framework, following the success of the first phase implemented in July 2024. The new regulations are expected to be finalized by mid-2025.
Kim So-young, Vice Chairman of the FSC, explained that the move comes as global cryptocurrency markets experience rapid changes. The second phase will primarily aim to provide stronger user protection and address emerging issues related to stablecoins and crypto exchanges. While specifics are still under wraps, the FSC is working with other government agencies to draft comprehensive regulations.
Kim So-young – Vice Chairman of the FSC
First Phase of South Korea’s Crypto Regulations
South Korea’s first cryptocurrency regulatory framework, known as the Virtual Asset User Protection Act, came into effect in July 2024. This regulation defines virtual assets, ensures user protection, and imposes penalties for unfair trade practices. It also mandates that service providers store at least 80% of users’ cryptocurrency deposits in cold wallets, separated from the company’s own assets.
The success of the initial regulation has paved the way for the next phase, which will build upon these foundations to address evolving challenges in the crypto space.
Key Focus Areas for Phase Two
The second phase of South Korea’s crypto regulations will focus on several key areas:
- Stablecoins: Regulations will be introduced to manage stablecoins, ensuring they are properly backed and regulated to protect users.
- Crypto Exchanges: There will be new rules governing the operations of crypto exchanges to ensure transparency and fair trading practices.
- Business Entry: New guidelines for business entry into the crypto market are expected, including stricter compliance measures for firms wishing to engage in cryptocurrency activities.
The FSC aims to collaborate with other relevant government bodies to ensure these regulations are comprehensive and well-structured.
Easing Crypto Restrictions for Institutional Investors
In addition to the new regulations, South Korea is considering easing restrictions on corporate crypto trading. The FSC is planning to gradually allow institutional investors, starting with non-profit organizations, to open real-name accounts on crypto exchanges. Currently, only retail investors with verified real-name accounts can trade, while institutional investors face more stringent requirements. This move could mark a significant shift in the regulatory landscape, potentially opening doors for broader institutional participation in the crypto market.
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Exploring Crypto Spot ETFs and Security Token Offerings
In January 2024, Jeong Eun-bo, Chairman of the South Korea Exchange, expressed interest in exploring the approval of crypto spot ETFs by 2025. Reports suggest that the FSC may also allow companies to launch security token offerings (STOs). These developments would further integrate cryptocurrencies into the country’s broader financial system.
Jeong Eun-bo – Chairman of the South Korea Exchange
Vice Chairman Kim So-young stressed that global economies are accelerating their regulatory efforts for cryptocurrencies, aiming to enhance investor protection and reduce uncertainty. South Korea plans to take a systematic and comprehensive approach, covering service providers, users, and market operations.
Conclusion
As South Korea progresses with its second phase of crypto regulations, the country is committed to fostering a secure and transparent cryptocurrency environment. The new rules will not only address the growing use of stablecoins and crypto exchanges but also ensure that user protection remains at the forefront. With the FSC’s plans to work closely with other government agencies, South Korea is taking significant steps toward building a balanced and innovative regulatory framework that meets the needs of both investors and businesses in the evolving crypto market.
