South Korea's Updated Crypto Regulations: Guidance on Adaptation to Coming Alterations [October 2021]
South Korea has amended its Act on the Reporting and Use of Specific Financial Transaction Information, extending Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) rules to virtual asset service providers (VASPs). The new law, which came into effect in March 2021, requires VASPs to implement more stringent AML/CTF measures, effective from March 2026.
The Financial Services Commission (FSC) has been providing updates and guidelines to help VASPs prepare for these changes. In the second half of 2025, detailed guidelines regarding AML and CTF measures, including eligibility criteria, operational frameworks, custody, and security requirements, are expected to be released.
VASPs must enhance their AML/CTF compliance frameworks to align with international standards, such as those issued by the Financial Action Task Force (FATF). This includes strengthening customer due diligence (CDD), transaction monitoring, and reporting systems. The FSC is incorporating lessons from global regulatory approaches to stablecoins, emphasizing comprehensive AML controls, especially as stablecoins are included under the new regulatory regime.
One of the key actions VASPs must take is to implement the FATF's Travel Rule, which requires the sharing of originator and beneficiary information on virtual asset transfers. South Korean VASPs should prepare to implement technical and procedural capabilities for compliant information exchange.
The new law also introduces expanded reporting obligations, requiring VASPs to develop or upgrade systems to identify, track, and report 'value transfer' activities. Effective from March 2026, these obligations will cover a broader range of virtual asset transactions and transfers of value.
VASPs dealing with stablecoins should also prepare for stricter regulatory compliance, including AML/CTF measures tailored to these assets. The amended Act will also include legislation specifically addressing stablecoins, including their use in payments and cross-border transfers.
In addition to strengthening their AML/CTF systems, VASPs should update their internal policies, conduct regular employee training, and enhance risk assessments to identify and mitigate money laundering and terrorist financing risks effectively.
All crypto service providers in South Korea must register with the Korean financial regulators before starting their activity. They must also acquire an Information Security Management System (ISMS) certificate at the Korea Internet & Security Agency (KISA). The deadlines for full compliance were set for September 2021.
The new law mainly affects cryptocurrency exchanges, custodian wallet providers, and Initial Coin Offering (ICO) projects. Failure to comply with the new law can result in a 5-year prison sentence for the company's owners or a 50 million Korean Won fine (around 43,000 USD) in sanctions.
Until recently, only the 4 biggest Korean exchanges - Bithumb, Upbit, Coinone, and Korbit - have implemented these measures. The new law covers the activity of VASPs involved in selling or buying cryptocurrencies, crypto-to-crypto exchanges, transferring cryptocurrencies, storing or managing virtual assets.
The details of the new law can be found in the Enforcement Decree of the Act on the Reporting and Use of Specific Financial Transaction Information. The amendment was passed on 5 March 2020.
These measures were introduced by the Financial Services Commission (FSC) in 2018. Robust preparation will ease compliance and align providers with international best practices and evolving domestic laws.
- VASPs in South Korea, while preparing for the detailed guidelines expected in the second half of 2025, must also ensure they align their investing strategies with enhanced technology, as they strengthen their finance systems to meet the stringent AML/CTF measures, including the adoption of the FATF's Travel Rule for information exchange.
- As South Korean VASPs deal with stablecoins, they should not only focus on AML/CTF measures tailored to these assets but also invest in technology that supports compliance with the new legislation specifically addressing stablecoins, particularly in payments and cross-border transfers.
