Regulatory Compliance 2.0 - South Korea Prepares to Introduce Second Phase of Cryptocurrency Laws

South Korea is set to unveil the next phase of cryptocurrency regulation in the second half of 2025. The government intends to tighten trading, entry and stablecoin regulations to improve transaction protection and transparency.

The Financial Services Commission (FSC), a state-run organisation in South Korea, held its second commission on virtual assets to draft the next version of the Virtual Asset Protection Act. The session, held on 15 January 2025, focused on international compliance, security, and a user-centric digital asset ecosystem.

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According to discussions held at the Seoul government complex, local media reported that the main focus is on legislative activities. The Virtual Committee has outlined a number of tasks for this second phase.
The first task of the asset committee operator is to strengthen compliance regulations related to business activities.

This will ensure that transactions are transparent, with a focus on protecting clients from unauthorised activities.

The second task concerns regulations on trading. The asset committee framework will create a transparent listing system to improve user protection, while also emphasising the importance of implementing a regular disclosure system.

The task force also reviewed policies on stablecoin regulations and international trends. The committee will introduce stricter rules for stablecoin issuers, promoting safe asset reserves and redemption rights.

Kim So-young, Vice President, said South Korea needs to align its policies with global trends. He referred to MiCA (Virtual Asset Market Act of the European Union) and other regulatory acts in Singapore and Hong Kong.

Young issued a statement saying:
"Our regulatory system aims for an integrated law. The policy review is almost complete after 12 subcommittees and discussions at the operational level. We will report the results to the Virtual Asset Committee as soon as possible and ensure that follow-up procedures are carried out."

The Financial Services Commission (FSC) plans to employ task forces and subcommittees to review these policies and generate a detailed bill by the end of the second half of 2025.
The first phase of the Virtual Asset User Protection Act was the beginning of regulation in South Korea. The act marked significant developments, such as the public disclosure by Upbit.

On the other hand, the FSC launched antitrust investigations into Upbit, leading to the reporting of over 600,000 Know Your Customer (KYC) violations. Following this event, the government raised questions about the exchanges' practices, with Young stating the need to revamp regulatory policies.

South Korea has faced numerous challenges in its regulatory space in the past. In 2019, North Korea stole 342,000 Ethereum (ETH), drawing government attention. This led regulators to implement strict security measures, trying to balance security and innovation.

The Korean government also discussed plans to lift the ban on cryptocurrency investments by the corporate sector, indicating its commitment to encouraging institutional participation.

South Korea is a major player in the global cryptocurrency market, ranking third as a global cryptocurrency hub after Switzerland and Dubai. The country recorded a high number of transactions, signalling a growing adoption of cryptocurrencies in this regulatory shift.

The FSC's main goal is to balance innovation and stability through the second phase of the Virtual Asset User Protection Act. By adopting transparency and a resilient ecosystem, the country will position itself as a global player in the distribution of virtual currencies.