SOUTH KOREA Law and Practice Contributed by: Wooyoung Choi, Suhhee Han, Seonghwan Ju and Matt Younghoon Mok, Lee & Ko
To comply with the Financial Action Task Force (FATF) international standards on combating money laun- dering and the financing of terrorism and prolifera- tion, Korea amended the Act on Reporting and Using Specified Financial Transaction Information, becom- ing the first jurisdiction to legally implement the “Travel Rule.” More recently, an enforcement decree has been proposed to extend the Travel Rule to transactions below KRW1 million. In addition, in response to the International Organiza- tion of Securities Commissions (IOSCO) policy rec- ommendations on crypto and digital asset markets, Korea enacted the Act on the Protection of Virtual Asset Users and its enforcement decree, introducing various investor protection and market integrity meas- ures, including the segregation of customer depos- its and virtual assets from the proprietary assets of VASPs. Furthermore, in line with the Bank for International Settlements (BIS)’s emphasis on the need for stable- coin regulation, discussions on the legalisation and regulatory framework for stablecoins are currently ongoing in Korea. 2.2 Crypto-Asset Regulatory Frameworks Classification of Tokens and Related Regulation Korean laws and regulations do not explicitly define a formal classification system for tokens. Under the current Act on the Protection of Virtual Asset Users, virtual assets are defined broadly, while central bank digital currencies (CBDCs), certain NFTs that meet specified criteria, and electronic payment instruments under the Electronic Financial Transactions Act (EFTA) are, in principle, excluded from the scope of virtual assets. Meanwhile, financial authorities take the view that classification of virtual assets should be determined not only by their technical form but also by their eco- nomic substance, and that applicable regulations are applied accordingly. Security tokens Where a token qualifies as a “security” under the Financial Investment Services and Capital Markets Act (FSCMA) – ie, where investors acquire certain
rights – the token is classified as a security token and becomes subject to existing capital markets regula- tions. Accordingly, licensing requirements (eg, invest- ment brokerage business authorisation) and securities registration requirements apply. In this regard, amend- ments to the ESA introducing a tokenised securities framework based on DLT have been enacted and are scheduled to take effect in February 2027. Payment instruments Where a token is used as a means of payment, it may fall under electronic money or prepaid electronic pay- ment instruments under the EFTA. However, financial authorities generally take the position that highly vola- tile virtual assets such as Bitcoin do not qualify as electronic payment instruments under the Act. More- over, electronic payment instruments are explicitly excluded from the definition of virtual assets, reflect- ing a regulatory intent to distinguish virtual assets from payment instruments. Discussion regarding stablecoins that may be used for payments and settlements have become increasingly active recently. It is expected that the forthcoming DABA will introduce a regulatory framework for stable- coins and may explicitly provide that they do not fall within the scope of electronic payment instruments under the EFTA. Overall, Korea adopts a dual-track regulatory approach, applying both the existing regu- latory framework and a separate virtual asset-specific Currently, virtual assets in Korea are primarily regu- lated under the Act on Reporting and Using Specified Financial Transaction Information and the Act on the Protection of Virtual Asset Users. Under the former, VASPs are subject to registra- tion obligations, compliance requirements, and AML duties. Specifically, any entity seeking to conduct vir- tual asset-related business such as trading, exchange, or custody must meet certain requirements (including information security management system certification) and register with the financial authorities as a VASP. In addition, VASPs are required to comply with AML obligations, including the Travel Rule, customer due diligence (KYC), and suspicious transaction reporting regulatory regime in parallel. Regulation of Virtual Assets
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