SOUTH KOREA Law and Practice Contributed by: Wooyoung Choi, Suhhee Han, Seonghwan Ju and Matt Younghoon Mok, Lee & Ko
3.4 Passporting Under the Korean Act on Reporting and Use of Cer- tain Financial Transaction Information, Korea’s VASP registration regime applies only to business activities conducted within the Korean market, and there is currently no separate framework for the mutual rec- ognition of licences. However, as Korea was the first country in the world to implement the Travel Rule, it may be relatively easier to demonstrate a high level of AML compliance. Regulations on Issuance and Sale of Virtual Assets Under the Act on Reporting and Using Specified Financial Transaction Information, VASPs are subject to a registration requirement with the KoFIU. Accord- ingly, any person engaging in the business of trading, exchanging, or brokering virtual assets must obtain VASP registration. However, where a virtual asset issuer merely sells its own issued virtual assets, such activity may not nec- essarily be regarded as a “business” requiring VASP registration, depending on factors such as whether the activity is conducted for profit and whether the sales are conducted repeatedly and continuously. Meanwhile, even foreign VASPs are required to regis- ter with KoFIU if they are deemed to be “conducting business targeting Korean users,” in which case they must also comply with obligations under Korean AML laws. Korean financial authorities determine whether a foreign VASP targets Korean users by considering factors such as: 4. Cross-Border Services 4.1 Marketing • whether Korean-language services are provided; • whether marketing or promotional activities target Korean users; and • whether KRW-denominated transactions or pay- ment methods are supported. Under the current legal framework, there are no explicit statutory requirements governing white papers, offer- ing documents, or disclosure obligations in connec- tion with the issuance or sale of virtual assets. How-
ever, the proposed DABA currently under discussion is expected to introduce such requirements. Accord- ingly, the progress and contents of the proposed leg- islation should be closely monitored. Regulations on Advertising of Virtual Assets Current Korean virtual asset laws do not specifically regulate advertising relating to virtual assets. How- ever, the proposed DABA reportedly includes provi- sions governing the subjects, content, methods, and procedures of virtual asset advertising. In addition, VASPs remain subject to the general requirements of the Act on Fair Labelling and Advertis- ing. Furthermore, as a form of industry self-regulation, the DAXA has issued the “Best Practice Guidelines for Advertising and Promotional Activities of VASPs”. The key elements of these guidelines include: • disclosure of risks such as potential loss of princi- pal, user responsibility for investment losses, and advertisement validity periods; • disclosure of fee rates charged to users; • prohibition on guaranteeing compensation for losses; and • prohibition on offering unfair economic benefits or incentives. 4.2 White Labelling Under Korean law, the obligation to register as a VASP is determined based on the actual activities substan- tively carried out by the relevant business operator. Accordingly, merely partnering with or relying on an already licensed entity does not allow another party to conduct virtual asset business activities without its own registration. Therefore, if external firms are deemed to be substan- tively engaging in activities such as virtual asset trad- ing or related services, there is a risk that they may independently be subject to VASP registration require- ments with the KoFIU, even where another entity’s licence structure is being used. Conversely, where all virtual asset trading activities and related brokerage, intermediation, or agency functions are conducted solely by another properly
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