South Korea has introduced a robust regulatory framework designed to balance innovation and safety within its booming digital asset ecosystem. Under the Virtual Asset User Protection Act, stringent anti–money laundering (AML) and enhanced know-your-customer (KYC) standards come into force June 1, 2025, authorizing non-profit organizations and licensed exchanges to conduct limited cryptocurrency sales while preparing for broader institutional participation later in the year. Fueling this shift are striking market metrics—total market capitalization surged to ₩107.7 trillion in H2 2024, daily trading volumes climbed 22 percent, and user engagement spiked by 25 percent—all underscoring the need for vigilant oversight and risk mitigation.

South Korea Crypto Regulations: Key Provisions and Legal Foundations

The cornerstone of these reforms is the Virtual Asset User Protection Act, which codifies requirements for virtual asset service providers (VASPs) and their banking partners. Effective June 1, 2025, the Act authorizes:

• Non-profit organizations to liquidate cryptocurrency donations received, subject to full source-of-funds verification.
• Registered exchanges to convert user fees paid in crypto into fiat currency, contingent on detailed transaction purpose reviews.

Central to the framework is a mandate that exchanges and partner banks conduct in-depth KYC for new institutional clients. This includes verifying source of funds, scrutinizing transaction purposes, and continuously monitoring institutions and their executives for laundering risks. By harmonizing with Financial Action Task Force standards and South Korea’s Act on Reporting and Using Specified Financial Transaction Information, regulators aim to prevent illicit finance without stifling growth.

KoFIU H2 2024 Survey Insights and Market Dynamics

A KoFIU survey of 25 registered VASPs covering July 1 to December 31, 2024, paints a vivid picture of South Korea’s virtual asset market trajectory . Key findings include:

• Average daily trading volume climbed from ₩6.0 trillion in H1 2024 to ₩7.3 trillion in H2, a 22 percent increase.
• Total operating profits rose 28 percent, from ₩581.3 billion to ₩741.5 billion.
• Total deposits more than doubled, surging 114 percent from ₩5.0 trillion to ₩10.7 trillion.
• Market capitalization expanded by ₩51.2 trillion (91 percent), reaching ₩107.7 trillion.
• Registered users eligible to trade grew 25 percent, from 7.78 million to 9.70 million.

“The price increase in virtual assets and expansion of market size observed from the second half of 2023 in the domestic virtual asset market accelerated in the second half of 2024,” KoFIU reported, highlighting the sector’s rapid ascent .

Despite overall growth, coin-only exchanges saw an 81 percent drop in daily volume and a 19 percent slide in market cap due to consolidation among KRW-based operators. External transfers under the travel rule rose modestly by 4 percent, while transfers to whitelisted overseas entities and personal wallets jumped 38 percent. Custody, wallet, and staking services saw an 89 percent decline in assets under custody and a 99 percent fall in user numbers following several business terminations.

Impact on Institutions and Market Confidence

With institutional investment set to resume in late 2025, regulators are using this phased approach as a stress test. Allowing non-profits and exchanges limited sales offers real-world data on transaction flows and compliance challenges. In the third quarter of 2025, the Financial Services Commission will publish guidelines enabling publicly listed companies and professional investors to trade crypto under “real-name” accounts, reinforced by rigorous KYC and AML protocols.

This incremental strategy mitigates risks: regulators can adjust policies based on observed market behavior, compliance bottlenecks, and laundering indicators. Meanwhile, transparent rules foster market confidence, attracting legitimate institutional capital and bolstering South Korea’s position as a leading crypto hub.

Best Practices for Compliance and Risk Management

Exchanges and banks should take proactive measures to meet new standards and demonstrate commitment to market integrity:

• Implement layered KYC processes, requiring enhanced due diligence for institutional clients, including source-of-wealth attestations and transaction purpose documentation.
• Deploy automated monitoring tools to flag anomalous patterns—such as rapid transfers between high-risk jurisdictions or transactions just below reporting thresholds—and complement these with manual reviews.
• Conduct regular AML training for employees, ensuring staff can recognize typologies like trade-based money laundering or mixer services.
• Perform periodic independent audits of compliance frameworks, simulating customer due-diligence reviews and stress-testing transaction-monitoring systems.
• Establish direct communication channels with the FSC and KoFIU, seeking clarifications and sharing best-practice insights.

Adherence to these practices not only satisfies regulatory requirements but also enhances reputational capital, a crucial asset in the competitive global crypto landscape.

Future Outlook and Evolving Regulatory Landscape

As South Korea refines its crypto regulations, several trends warrant attention:

• Expansion of RegTech solutions: AI-driven analytics platforms will become indispensable for real-time AML screening and KYC automation.
• Cross-border collaboration: South Korean authorities are engaging with international counterparts to harmonize travel-rule implementations and information-sharing protocols.
• Token classification frameworks: Regulators may introduce clear criteria distinguishing securities from utility tokens, impacting listing requirements and investor protections.
• Consumer education initiatives: Public outreach campaigns will inform retail investors about risks associated with crypto trading and custody.

By staying agile and data-driven, South Korea can navigate emerging challenges and maintain a secure, transparent market that fosters innovation.

Conclusion

South Korea’s enhanced AML and KYC requirements, underpinned by the Virtual Asset User Protection Act, represent a pivotal stride toward a secure, sustainable crypto ecosystem. Integrating insights from the KoFIU H2 2024 survey—highlighting surging market cap, trading volumes, and user growth—regulators are calibrating a careful balance between opening institutional participation and safeguarding against illicit finance. As limited crypto sales by non-profits and exchanges commence in June 2025, the stage is set for broader institutional access later in the year, guided by rigorous compliance frameworks and ongoing market data analysis.

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Related Links

• Financial Services Commission Policy Agenda: Virtual Asset User Protection Act
• Korea Financial Intelligence Unit Website
• Act on the Protection of Virtual Asset Users (Korean Law Portal)
• Act on Reporting and Using Specified Financial Transaction Information (Korean AML Act)

Other FinCrime Central News About Korea and Crypto

• South Korea’s Reverses Crypto Trading Ban for Institutionals
• Upbit Ban Shock: Major Setback for Crypto Users in South Korea
• South Korea’s Crypto Market Could Open to Foreign Investors
• South Korea Unleashes Bold Crypto Reforms to Dominate Digital Finance

Source:

• The Block, by Danny Park
• KoFIU Unveils H2 2024 Survey Result on Virtual Asset Service Providers

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.