Cryptocurrency Regulation in South Korea Prior to 2024

South Korea’s legislative landscape regarding cryptocurrencies prior to 2024 presents a progressive and structured approach toward regulation, with a focus on legality, identity verification, and financial security.

Early Regulations and Real-Name Trading System

In January 2018, the South Korean government took a significant step towards regulating cryptocurrency trading. It introduced a system where trading was restricted to real-name bank accounts. This move aimed to allow banks to verify the identity of traders, thus reducing the potential for criminal activities and money laundering. This regulation also prohibited foreigners and minors from trading in cryptocurrencies, reflecting a cautious approach to controlling the market​

Government Support for Cryptocurrency Trading

In February 2018, the Chief of South Korea’s Financial Supervisory Service, Choe Heung-sik, indicated the government’s support for standard cryptocurrency trading. This support was a signal for financial institutions to facilitate transactions with cryptocurrency exchanges, suggesting a move towards integrating cryptocurrencies into the broader financial system​

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The March 2020 Amendment

A pivotal moment in South Korea’s cryptocurrency regulation came on March 5, 2020, with the passage of an amendment to the Act on the Reporting and Use of Specific Financial Transaction Information (the “March 2020 Amendment”). Set to be effective from March 2021, this legislation provided a comprehensive regulatory framework for cryptocurrencies and related services. Notably, it officially legalized cryptocurrency in South Korea and established mandatory compliance measures. The amendment signified the government’s recognition of the growing significance of digital assets in the financial sector​

Compliance Requirements for Virtual Asset Service Providers

The March 2020 Amendment laid down specific compliance requirements for Korean virtual asset service providers, including:

Registration of an authorized bank account to provide customers with real-name bank accounts at the same bank.

Acquisition of an Information Security Management System (ISMS) certification from the Korea Internet Security Agency (KISA).

Provision of all company details and bank account information to the Korea Financial Intelligence Unit (KoFIU).

Implementation of expanded Anti-Money Laundering/Know Your Customer (AML-KYC) procedures​

Taxation of Cryptocurrency

South Korea’s Ministry of Economy and Finance was actively working on and advocating for amendments to the tax code to enable the taxation of cryptocurrency. This effort to incorporate cryptocurrency into the tax framework indicated an understanding of the potential revenue and the need for regulatory oversight in this emerging market​

Conclusion

As of 2023, South Korea’s approach to cryptocurrency regulation demonstrated a balanced mix of cautious control and progressive adoption. The country’s efforts to regulate trading, ensure compliance, and integrate digital assets into its legal and financial systems, underscored its commitment to both safeguarding the integrity of its financial markets and fostering the growth of new financial technologies.