Quick Breakdown
- South Korea will now vet major shareholders, not just executives, when licensing crypto firms.
- The FIU gains authority to issue conditional licenses and assess firms more holistically.
- Ownership caps for crypto exchanges are increasingly likely as regulators push tighter controls.
South Korea has approved changes to its crypto licensing framework, raising the bar for companies seeking to operate in the country and giving regulators broader powers to scrutinize ownership, governance and risk controls across the digital asset sector.
Lawmakers on Thursday passed amendments to the Act on Reporting and Using Specified Financial Transaction Information, a key pillar of the country’s anti-money laundering (AML) regime for virtual assets. The revised law, approved during a National Assembly plenary session, is set to take effect six months after enactment.
Wider background checks and stronger FIU powers
Under the new rules, background checks for virtual asset service providers (VASPs) will extend beyond executives to include controlling and major shareholders. Regulators will assess a broader range of potential red flags, including convictions for drug trafficking, tax evasion, fair-trade violations, serious economic crimes, and breaches of South Korea’s crypto user protection laws.
The amendment also strengthens the role of the Financial Intelligence Unit (FIU), allowing it to take a more holistic view when deciding whether to grant a license. In addition to AML compliance, the FIU can now consider a firm’s financial health, internal control systems, legal history and overall credibility.
For the first time, regulators will also be able to issue conditional licenses, attaching requirements designed to mitigate money-laundering risks or improve user protection before granting full approval.
Governance tightening and ownership caps in focus
The overhaul closes a long-standing loophole involving former financial industry employees. Going forward, the FIU must notify a company’s chief executive if a former staff member is sanctioned for AML violations, with firms required to pass on the notice and keep related records.
The legislative move comes alongside a broader regulatory push to tighten governance standards in the crypto sector. On January 28, Financial Services Commission (FSC) Chair Lee Eog-weon publicly backed proposals to cap major shareholders’ stakes in crypto exchanges at around 15% to 20%, aligning them more closely with securities markets.
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