TLDR
- South Korea has approved an amendment to its crypto licensing law to tighten entry requirements for virtual asset service providers.
- The new rules mandate more extensive background checks on crypto firms, including scrutiny of major shareholders.
- Regulators will now examine offenses such as drug trafficking, tax evasion, and economic crimes as part of the vetting process.
- The Financial Intelligence Unit now has more authority in deciding which firms can receive licenses to operate.
- The law allows the Financial Intelligence Unit to issue conditional licenses with specific requirements to address risks.
South Korea has passed a law tightening the country’s crypto licensing framework, adding stricter entry requirements for virtual asset service providers (VASPs). The amendment to the Act on Reporting and Using Specified Financial Transaction Information was approved on Thursday by the National Assembly. The changes will broaden the scope of background checks on crypto firms and their controlling shareholders, enhancing regulatory scrutiny.
Expanded Background Checks for Crypto Firms
The new law mandates a more comprehensive vetting process for crypto firms seeking to operate in South Korea. Previously, background checks focused primarily on company executives. Now, regulators will also examine major shareholders, ensuring no individual with a history of financial crimes is involved.
The list of offenses under scrutiny has expanded as well. It now includes drug trafficking, tax evasion, fair-trade violations, serious economic crimes, and breaches of the country’s crypto user protection laws. These stricter checks aim to improve the integrity and credibility of firms entering the digital asset market.
South Korea Grants Financial Intelligence Unit (FIU) More Power
The latest changes also give South Korea’s Financial Intelligence Unit (FIU) more authority in the licensing process. The FIU will evaluate firms not only for their financial health but also for their internal controls and legal track records. This broader approach will help regulators assess the ability of companies to operate responsibly.
Furthermore, the FIU can now issue conditional licenses, attaching specific requirements to mitigate risks like money laundering and user protection violations. This move is part of South Korea’s efforts to create a safer environment for crypto users and businesses alike.
Closing Loopholes and Strengthening Governance
The amended law addresses a longstanding issue involving former financial industry employees. The FIU will now be obligated to notify business executives if a former employee is sanctioned for violating anti-money laundering (AML) rules. The companies will then be required to inform the individual involved and retain the related documentation.
South Korea’s financial watchdog, the Financial Services Commission (FSC), has also backed ownership restrictions for crypto exchanges. The proposed Digital Asset Basic Act could impose limits on major shareholders’ stakes, reducing them to 15%-20%. These measures aim to align crypto exchanges more closely with securities markets, treating them as key infrastructure.
