South Korea Cryptocurrency Regulation

Is Cryptocurrency Legal in South Korea?

• Cryptocurrencies: Not legal tender
• Cryptocurrency exchanges: Legal, must register with FSS

Currently, South Korea cryptocurrency regulation means that crypto is not considered legal tender. Exchanges, while legal, are part of a closely-monitored regulatory system. Cryptocurrency taxation in South Korea represents a grey area: since they are considered neither currency nor financial assets, cryptocurrency transactions are currently tax-free. However, the Ministry of Strategy and Finance has indicated that it is considering imposing a tax on income from crypto transactions and is planning to announce a taxation framework in 2022.

South Korea Cryptocurrency Regulation – Exchanges

Cryptocurrency exchange regulations in South Korea are strict and involve government registration and other measures overseen by the South Korean Financial Supervisory Service (FSS).

Although a rumored ban never materialized, in 2017 the South Korean government prohibited the use of anonymous accounts in cryptocurrency trading and also banned local financial institutes from hosting trades of Bitcoin futures. In 2018, the Financial Services Commission (FSC) imposed tighter reporting obligations on banks with accounts held by crypto exchanges. The new rules allow cryptocurrency trades only from “real-name bank accounts”: in practice, this means that a trader (customer) must open a real-name account at the same bank as their cryptocurrencies dealer in order to make a deposit or extract funds from their e-wallet. Both the bank and the dealer must check the trader’s identity in keeping with traditional AML/CFT regulations and with structured transactions reporting requirements. In 2020, the South Korean government passed an amendment to the existing South Korea cryptocurrency regulation, extending mandatory AML/CFT obligations to all South Korean exchanges, and introducing a requirement that firms obtain an operating license from the Financial Services Commission’s Financial Intelligence Unit by the end of September 2021.

Future Cryptocurrency Regulations in South Korea

In addition to the proposed tax framework for cryptocurrencies, South Korea has indicated that it will continue to work to bring the industry into alignment with FATF’s anti-money laundering policies. It is unclear if associated rules on age limits (of local customers), access by foreign or anonymous traders (to withdraw funds from e-wallets), or cash withdrawals, will be relaxed, hardened, or amended by the new policies. South Korea will also implement an amendment to its Special Payment Act in March 2021, banning the use of privacy coins on exchanges.