South Korea Moves to Tighten Regulations on Cryptocurrency Transactions

In a bid to enhance oversight and curb potential misuse of cryptocurrencies, the Financial Services Commission (FSC) of South Korea is considering a ban on the purchase of cryptocurrencies via credit cards. Despite the country’s generally favorable stance towards cryptocurrencies, concerns have arisen regarding the potential for illegal activities, including money laundering and terror financing, facilitated by the relative anonymity and untraceability of cryptocurrency transactions.

The FSC expressed worries about the illegal outflow of domestic funds overseas through card payments on international virtual asset exchanges, as well as the potential for money laundering, speculation, and encouraging speculative activities. Currently, local crypto exchanges in South Korea are required to collect and store user identities for verification purposes, but these regulations do not extend to international exchanges.

The proposed ban aims to reduce the margin for criminals to exploit cryptocurrencies for unlawful activities, particularly through the misuse of credit cards. The FSC anticipates that establishing a basis for cooperation with international entities will strengthen measures against foreign currency outflow and money laundering.

The regulatory authority has invited public feedback on the proposal until February 13, with a decision expected to be finalized in the first half of 2024 after reviewing the received input. A recent FSC study revealed that the South Korean crypto market reached a valuation of $46 billion by the end of 2021, with approximately 10 percent of the country’s population, or 5.58 million users, participating in cryptocurrency activities.

South Korea has been actively taking steps to regulate and categorize blockchain-based tokens within its territories, treating them as securities. This move emphasizes the commitment to overseeing and regulating the cryptocurrency landscape within the country.

Furthermore, the Ministry of Justice in South Korea is reportedly developing a ‘Virtual Currency Tracking System’ to prevent instances of money laundering through cryptocurrencies. This multifaceted approach underscores the nation’s dedication to creating a secure and regulated environment for cryptocurrency transactions.

As countries worldwide grapple with the challenges posed by the rapid growth of the cryptocurrency market, South Korea’s proactive measures reflect a concerted effort to strike a balance between fostering innovation and safeguarding against potential illicit activities associated with virtual currencies.