The Korea Financial Intelligence Unit (KoFIU) announced a sweeping plan to enhance supervision of the crypto industry, which includes expelling crypto exchanges that fail to meet stringent operational standards, according to local media reports on Feb. 12.
The initiative is part of South Korea’s effort to bolster financial oversight and consumer protection in the fast-evolving digital asset industry.
The new measures are part of KoFIU’s comprehensive strategy for 2024, developed after extensive consultations with industry stakeholders and policy advisors.
The announcement comes as the agency prepares to oversee the renewal of registrations for crypto exchanges, a process initiated following the establishment of an official registration framework in the fall of 2021.
Starting in 2024, the KoFIU will intensify its scrutiny and inspection of crypto exchanges, targeting those deemed unsuitable due to inadequate compliance with regulatory requirements.
The crackdown aims to purge the market of entities that pose risks to investors and the financial system’s integrity. The regulatory body also disclosed plans to thwart the entry of unfit virtual business operators by broadening the criteria for market entry.
This includes a novel approach to preemptively suspend trading activities suspected of being linked to financial crimes, even before formal investigations commence. The system aligns with practices recommended by the Financial Action Task Force (FATF).
The intensified regulatory scrutiny is in anticipation of the upcoming virtual asset consumer protection law, set to take effect in July 2024. This landmark legislation aims to provide a safer and more transparent trading environment for crypto users in South Korea.
Crypto exchanges in South Korea, recognized by the government three years ago, are expected to renew their licenses in the latter half of the year.
The KoFIU said it will conduct rigorous assessments in the coming months to evaluate exchanges’ compliance with anti-money laundering directives, their operational robustness in handling transactions in Korean won, and their consumer protection protocols.
KoFIU Commissioner Rhee Yun-su emphasized the importance of these measures in ensuring the healthy growth of the crypto market, stating:
“As we prepare for the enactment of the Virtual Asset Consumer Protection Act and face a significant number of renewal registrations, it’s crucial that we advance institutional improvements to maintain a robust and secure cryptocurrency industry.”
South Korea’s proactive stance on crypto regulation reflects a broader global trend toward establishing clear legal frameworks for digital assets. By setting high standards for exchange operations and consumer protection, the country is positioning itself as a leader in managing the complexities associated with the digital economy.
The regulatory overhaul is expected to enhance market stability, protect investors, and deter financial crimes in the crypto sector, further establishing South Korea as a pivotal player in global digital finance.