SOUTH KOREA Law and Practice Contributed by: Jongbaek Park, Seungil Hong, Seyeong Im and Eric Jeong, Bae, Kim & Lee LLC
security will also have to satisfy the requirements for electronic prepayment means and may have to be classified as an electronic prepayment instrument. In addition, the security will have to follow the applica - ble regulations. However, since electronic prepayment means require a centralised issuer, blockchain assets are unlikely to fall under this category. 10.4 Regulation of “Issuers” of Blockchain Assets The Korean government announced the prohibition of initial coin offerings in 2017 and has kept this position to date. It is therefore a fact that issuing any block - chain assets that constitute virtual assets in Korea is not allowed. However, the government is planning to permit the issuance of security tokens in accord - ance with amended STO laws and regulations, and is expected to permit the issuing of virtual assets as well once the laws allowing issuance of virtual assets are enacted. At present, a total of five legislative bills have been proposed as basic framework laws relating to digital assets, and each of these bills provides for the regula - tion of the business of issuing digital assets and, with respect to the issuance of stablecoins, introduces a licensing regime requiring issuers to meet a minimum capital threshold. 10.5 Regulation of Blockchain Asset Trading Platforms Under the AML Act, a person who intends to engage in the sale, exchange and brokerage of virtual assets as a business is required to register as a VASP. The obligation to register as a VASP under the Financial Information Transaction Act was mainly established to impose AML obligations on VASPs. Most of the obli - gations imposed on VASPs under the Financial Infor - mation Transaction Act therefore relate to the AML regime. Meanwhile, several bills aimed at introducing a new VASP licensing framework are currently pend - ing before the National Assembly. One of these bills proposes to impose on virtual asset exchanges that broker virtual asset transactions an obligation to main - tain fairness in the listing of virtual assets. Another bill would require exchanges, when deciding on the listing or delisting of virtual assets, to obtain the opinion of
a transaction support eligibility review committee that is structurally independent from the exchange itself. In light of these legislative developments, it is antici - pated that the overall obligations of asset trading plat - forms to support fair virtual asset listings and transac - tion intermediation will be further strengthened going forward. Accordingly, it will be necessary to continue closely monitoring the legislative progress of these bills. 10.6 Staking Staking services are not prohibited under Korean law. However, under the VAUPA, a staking service provid - er must retain actual possession of the virtual assets entrusted to them by users. Providers may therefore only offer staking services they operate and take cus - tody directly rather than outsourcing these activities to third parties. In addition, if a provider takes custody of users’ virtual assets, it is required to obtain a virtual asset custody service licence for these activities. 10.7 Crypto-Related Lending Lending services relating to cryptocurrencies are not prohibited or restricted under Korean law. The finan - cial authorities have interpreted that virtual assets do not fall within the scope of “money or the like”, which is subject to regulation under the Lending Business Act. As the value of virtual assets has risen in recent years, there has been growing interest in lending structures in which virtual assets are provided as collateral. At pre - sent, there are no regulations that expressly prohibit the creation of security interests over virtual assets. However, depending on the specific method by which collateral is established and enforced, a VASP licence may be required. For example, where a lender takes custody of virtual assets entrusted to it by a borrower and, upon satisfaction of enforcement conditions, acquires ownership of those assets, such structure may constitute the custody of entrusted virtual assets and therefore require a virtual asset custody service licence as a VASP. 10.8 Cryptocurrency Derivatives Derivatives with virtual assets as underlying assets are currently prohibited under the policies of the Korean
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