Highlights:
- South Korea plans to regulate cross-border virtual asset transactions to combat misuse.
- Businesses must register and report international crypto transfers to the Bank of Korea.
- Legal revisions are expected to finish by early 2025, with new rules in Q2.
The South Korean government intends to regulate cross-border transactions involving virtual assets such as cryptocurrencies. The goal is to prevent the misuse of cryptocurrencies for tax evasion and illegal foreign exchange activities, the country’s Minister of Economy and Finance, Choi Sang-mok, announced at a G20 meeting in Washington on October 24, according to South Korean news reports.
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Choi announced that South Korea will mandate businesses involved in international crypto transfers to register and report all transactions to the Bank of Korea monthly. South Korea’s tax, customs, financial, and international finance regulatory bodies will monitor the reported transaction data to identify illegal activities and support research efforts. The finance minister stated that he anticipates the legal revisions will be completed by the first half of 2025, with the new reporting requirements set to take effect in Q2.
Rising Financial Crime Risks in South Korea
Despite being a small country, South Korea has embraced cryptocurrencies. This adoption has introduced the risk of financial crimes. Since 2020, authorities have identified 11 trillion won ($7.97 billion) in foreign exchange-related crimes. Notably, 81.3 percent of these cases involved virtual assets.
Choi stated that cross-border crypto transactions are currently a “blind spot” for South Korea’s tax and customs services. Criminals might take advantage of the inconsistent enforcement to hide illegal profits and carry out unlawful transactions. However, the government must first create a solid legal foundation before introducing the new rules.
Choi said:
“We will establish new definitions of ‘virtual assets’ and ‘virtual asset business operators’ in the Foreign Exchange Transactions Act, and with this separate definition, we will define virtual assets as a ‘third type’ that is not included in foreign exchange, external payment means, or capital transactions.”
With these measures, South Korea aims to protect its financial system while promoting the responsible growth of cryptocurrency in the economy. As per reports, over a dozen crypto exchanges shut down in 2024, leaving customers with $12.8 million in locked assets.
South Korea’s Regulatory Efforts to Safeguard the Crypto Market and Consumers
South Korea is actively working to regulate its crypto market and protect customers. In July 2024, it introduced the Virtual Asset User Protection Act, its first customer protection law. The legislation mandates that crypto exchanges implement robust monitoring systems to detect and report suspicious activities to financial authorities.
SOUTH KOREA'S NEW CRYPTO REGULATORY LAW NOW IN EFFECT: FACTS…
– South Korea’s Virtual Asset User Protection Act (VAUPA) officially took effect on July 19, 2024, marking a crucial milestone in the regulation of the country’s expanding cryptocurrency market.
Here’s a breakdown… https://t.co/sy06gK7ayB pic.twitter.com/YPNGgAgU7W
— BSCN (@BSCNews) July 19, 2024
This was followed by regulations focused on investor security. Moreover, authorities have also begun investigating tokens like AVAIL and NFP for suspected price manipulation. Recently, FSS Governor Lee Bok-hyun outlined South Korea’s plan to adopt a free-market approach to crypto.
Addressing concerns over competitive interest rates on exchanges like Bithumb, he suggested that the country would implement flexible regulations. Moreover, South Korea’s top financial watchdog is reviewing its ban on local spot cryptocurrency ETFs and institutional accounts on exchanges. This effort aims to broaden the country’s retail-focused crypto sector.
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