Korea (the Republic of)
Retail_Trading_Status
- Analysis ID
- #704
- Version
- Latest
- Created
- 2025-12-12 04:42
- Run
- 8cbea276...
- History
- View all versions
- Workflow Stage
- Step 1
Executive Summary
Retail cryptocurrency trading in South Korea is legal and subject to one of the world's most stringent regulatory frameworks. The primary regulator, the Financial Services Commission (FSC), enforces a comprehensive licensing regime requiring Virtual Asset Service Providers (VASPs) to register with the Korea Financial Intelligence Unit (KoFIU), obtain Information Security Management System (ISMS) certification, and partner with local banks to provide real-name accounts for users. The 'Virtual Asset User Protection Act,' effective July 2024, mandates strict user asset segregation and prohibits market manipulation, while a scheduled capital gains tax has been postponed until 2027.
Key Pillars
Financial Services Commission (FSC) - Primary financial regulator overseeing the crypto market and policy.
Korea Financial Intelligence Unit (KoFIU) - Responsible for VASP registration and AML/CFT enforcement.
Korea Internet & Security Agency (KISA) - Issues the mandatory ISMS (Information Security Management System) certification for exchanges.
Digital Asset Exchange Alliance (DAXA) - Self-regulatory body comprising the top exchanges (Upbit, Bithumb, etc.) that sets joint standards for delisting and compliance.
Landmark Laws
Virtual Asset User Protection Act (Act No. 19565) - Enacted: 2024-07-19
- The first law dedicated to crypto investor protection. It mandates that VASPs segregate customer deposits (held by banks), keep 80% of crypto in cold wallets, and maintain insurance against hacks. It also imposes criminal penalties for market manipulation and unfair trading practices.
- Source
Act on Reporting and Using Specified Financial Transaction Information (Specific Financial Information Act) (Act No. 17929) - Enacted: 2021-03-25
- Established the VASP licensing regime. Requires crypto exchanges to register with KoFIU, implement AML/KYC procedures, obtain ISMS certification, and secure partnerships with commercial banks to issue real-name accounts to users.
- Source
Considerations
Real-Name Account Rule: Fiat-to-crypto trading is only possible if the user's bank account matches the exchange's partner bank; anonymous trading is effectively banned.
Privacy Coin Ban: Trading of privacy-enhancing coins (e.g., Monero, Zcash) is prohibited on all licensed exchanges.
Taxation Delayed: A proposed 20% capital gains tax on crypto earnings has been postponed multiple times, currently set for implementation in 2027.
Institutional Restrictions: While retail trading is open, institutional investment has historically been restricted, though plans exist to lift the ban on institutional trading starting in 2025.
Travel Rule: Fully implemented; exchanges must share sender/receiver data for transfers exceeding 1 million KRW.
Notes
South Korea is often referred to as the 'Kimchi Premium' market due to high retail demand causing local price disparities. The regulatory environment is characterized by a 'negative list' approach where specific high-risk activities (privacy coins, anonymous accounts) are banned, while the general market is heavily formalized. The 'Big Five' exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax) effectively operate as a quasi-oligopoly due to the high barrier of entry (banking partnerships).
Remaining Uncertainties
- Exact timeline and conditions for the lifting of the ban on institutional crypto trading in 2025.
- Specifics of the 'Stage 2' legislation (Digital Asset Basic Act) which is expected to cover token issuance (ICOs) and stablecoins, which are not fully covered by the current User Protection Act.
- Final confirmation of the 2027 tax implementation without further delays.
Detailed Explanation
Detailed Explanation
Retail cryptocurrency trading in the Republic of Korea is legal and operates under one of the world's most stringent and formalized regulatory frameworks, categorized as allowed-regulated. The primary regulatory framework is established by the Financial Services Commission (FSC) and enforced through a comprehensive licensing regime. The cornerstone of this regime is the Act on Reporting and Using Specified Financial Transaction Information (Specific Financial Information Act) (Act No. 17929), enacted on 2021-03-25. This law mandates that all Virtual Asset Service Providers (VASPs), such as exchanges, must register with the Korea Financial Intelligence Unit (KoFIU), which is responsible for anti-money laundering and counter-terrorist financing enforcement. To obtain registration, VASPs must secure a mandatory Information Security Management System (ISMS) certification from the Korea Internet & Security Agency (KISA) and form a critical partnership with a local commercial bank to provide real-name verified accounts for all users, effectively banning anonymous trading. The regulatory landscape was further solidified with the enactment of the Virtual Asset User Protection Act (Act No. 19565) on 2024-07-19, the first law dedicated to crypto investor protection. This act imposes strict operational mandates on VASPs, including the segregation of customer deposits (held by partner banks), the requirement to keep 80% of crypto assets in cold wallets, and the maintenance of insurance against hacks. It also criminalizes market manipulation and unfair trading practices. The self-regulatory body, the Digital Asset Exchange Alliance (DAXA), which comprises the major exchanges like Upbit and Bithumb, sets joint standards for compliance and delisting. The market is characterized by high barriers to entry, leading to a quasi-oligopoly of the 'Big Five' exchanges. Notable restrictions include a complete ban on trading privacy-enhancing coins like Monero and Zcash on all licensed platforms. Furthermore, while a 20% capital gains tax on crypto earnings has been legislated, its implementation has been postponed and is currently scheduled for 2027. Institutional investment has historically been restricted, though plans exist to lift this ban starting in 2025. The Travel Rule is fully implemented for transfers exceeding 1 million KRW.
Summary Points
I. Regulatory Status
* Retail cryptocurrency trading is legal and allowed-regulated under a stringent formal framework.
* The market is characterized by a 'negative list' approach, banning specific high-risk activities while heavily formalizing the general market.
II. Key Regulatory Bodies
* Financial Services Commission (FSC): The primary financial regulator overseeing the crypto market and policy.
* Korea Financial Intelligence Unit (KoFIU): Responsible for VASP registration and AML/CFT enforcement.
* Korea Internet & Security Agency (KISA): Issues the mandatory ISMS (Information Security Management System) certification for exchanges.
* Digital Asset Exchange Alliance (DAXA): A self-regulatory body comprising the top exchanges (Upbit, Bithumb, etc.) that sets joint standards for delisting and compliance.
III. Important Legislation
* Virtual Asset User Protection Act (Act No. 19565)
* Enacted: 2024-07-19
* The first law dedicated to crypto investor protection.
* Mandates VASPs to segregate customer deposits (held by banks), keep 80% of crypto in cold wallets, and maintain insurance against hacks.
* Imposes criminal penalties for market manipulation and unfair trading practices.
* Act on Reporting and Using Specified Financial Transaction Information (Specific Financial Information Act) (Act No. 17929)
* Enacted: 2021-03-25
* Established the core VASP licensing regime.
* Requires crypto exchanges to register with KoFIU, implement AML/KYC, obtain ISMS certification, and secure bank partnerships for real-name accounts.
IV. Compliance Requirements
* Mandatory registration as a VASP with the Korea Financial Intelligence Unit (KoFIU).
* Obtainment of ISMS certification from KISA.
* Partnership with a local commercial bank to provide real-name verified accounts for users; fiat-to-crypto trading is only possible if the user's bank account matches the exchange's partner bank.
* Full implementation of the Travel Rule for transfers exceeding 1 million KRW.
* Adherence to strict user asset segregation, cold wallet storage, and insurance mandates as per the Virtual Asset User Protection Act.
V. Notable Restrictions or Limitations
* Real-Name Account Rule: Anonymous trading is effectively banned; users must have a bank account at the exchange's partner bank.
* Privacy Coin Ban: Trading of privacy-enhancing coins (e.g., Monero, Zcash) is prohibited on all licensed exchanges.
* Institutional Restrictions: Institutional investment has historically been restricted, though plans exist to lift the ban starting in 2025.
* High Barrier to Entry: The stringent requirements for banking partnerships and certification have led to a market dominated by the 'Big Five' exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax), creating a quasi-oligopoly.
VI. Recent Developments or Notes
* The proposed 20% capital gains tax on crypto earnings has been postponed multiple times and is currently scheduled for implementation in 2027.
* The 'Kimchi Premium' phenomenon, where high local retail demand causes price disparities, is a notable market characteristic.
* The Virtual Asset User Protection Act, which took effect in July 2024, represents a major recent development in formalizing investor protection standards.
Full Analysis Report
Full Analysis Report
South Korea has established itself as a 'Allowed-Regulated' jurisdiction with a mature, albeit highly restrictive, environment for retail cryptocurrency trading. The regulatory framework is bifurcated into anti-money laundering (AML) compliance and investor protection. The foundational 'Specific Financial Information Act' (amended in 2021) requires all Virtual Asset Service Providers (VASPs) to register with the Korea Financial Intelligence Unit (KoFIU). To achieve full registration for fiat trading, exchanges must obtain ISMS certification from KISA and secure a partnership with a commercial bank to offer real-name withdrawal and deposit accounts. This 'real-name' system effectively eliminates anonymous trading and ties every crypto account to a verified bank identity.
In July 2024, the 'Virtual Asset User Protection Act' (VAUPA) came into force, marking a significant shift from purely AML-focused regulation to active market supervision. This law imposes strict operational requirements on VASPs, such as the mandatory segregation of user fiat deposits (which must be held by banks, not the exchange) and the requirement to keep at least 80% of user virtual assets in cold storage. Furthermore, the Act grants the Financial Services Commission (FSC) the authority to supervise and sanction exchanges for unfair trading practices, including price manipulation and front-running, with penalties extending to life imprisonment for severe violations.
Despite the robust framework for retail investors, the market faces specific restrictions. 'Privacy coins' (e.g., Monero, Zcash) are banned from listing to prevent money laundering. Additionally, the government has maintained a long-standing ban on Initial Coin Offerings (ICOs) domestically, though this is often circumvented by issuing tokens abroad. Institutional participation has also been restricted, creating a market dominated by retail traders. However, reports in early 2025 indicate that the FSC plans to lift the ban on institutional crypto trading in phases, starting with non-profits and eventually expanding to listed companies.
Taxation remains a contentious and evolving issue. A 20% capital gains tax on virtual asset income exceeding 2.5 million KRW was originally scheduled for 2022 but has faced repeated legislative delays. As of late 2024/early 2025, the implementation has been postponed again to January 2027, providing a continued tax-free window for retail investors. The regulatory landscape is stabilized by the 'Big Five' exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax) which dominate the market due to their ability to meet the stringent banking partnership requirements.
South Korea has established itself as a 'Allowed-Regulated' jurisdiction with a mature, albeit highly restrictive, environment for retail cryptocurrency trading. The regulatory framework is bifurcated into anti-money laundering (AML) compliance and investor protection. The foundational 'Specific Financial Information Act' (amended in 2021) requires all Virtual Asset Service Providers (VASPs) to register with the Korea Financial Intelligence Unit (KoFIU). To achieve full registration for fiat trading, exchanges must obtain ISMS certification from KISA and secure a partnership with a commercial bank to offer real-name withdrawal and deposit accounts. This 'real-name' system effectively eliminates anonymous trading and ties every crypto account to a verified bank identity. In July 2024, the 'Virtual Asset User Protection Act' (VAUPA) came into force, marking a significant shift from purely AML-focused regulation to active market supervision. This law imposes strict operational requirements on VASPs, such as the mandatory segregation of user fiat deposits (which must be held by banks, not the exchange) and the requirement to keep at least 80% of user virtual assets in cold storage. Furthermore, the Act grants the Financial Services Commission (FSC) the authority to supervise and sanction exchanges for unfair trading practices, including price manipulation and front-running, with penalties extending to life imprisonment for severe violations. Despite the robust framework for retail investors, the market faces specific restrictions. 'Privacy coins' (e.g., Monero, Zcash) are banned from listing to prevent money laundering. Additionally, the government has maintained a long-standing ban on Initial Coin Offerings (ICOs) domestically, though this is often circumvented by issuing tokens abroad. Institutional participation has also been restricted, creating a market dominated by retail traders. However, reports in early 2025 indicate that the FSC plans to lift the ban on institutional crypto trading in phases, starting with non-profits and eventually expanding to listed companies. Taxation remains a contentious and evolving issue. A 20% capital gains tax on virtual asset income exceeding 2.5 million KRW was originally scheduled for 2022 but has faced repeated legislative delays. As of late 2024/early 2025, the implementation has been postponed again to January 2027, providing a continued tax-free window for retail investors. The regulatory landscape is stabilized by the 'Big Five' exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax) which dominate the market due to their ability to meet the stringent banking partnership requirements.
Source Evidence
Primary and secondary sources cited in this analysis
"The purpose of this Act is to protect the rights and interests of users and to establish a transparent and sound order in the virtual asset market by prescribing matters concerning the protection of virtual asset users and the regulation of unfair trading practices."
"From July 19, 2024, the Virtual Asset User Protection Act will take effect... VASPs must deposit users' money in banks and keep 80% or more of users' virtual assets in cold wallets."
"List of Report Acceptance of Virtual Asset Service Providers (VASPs)"
"Korea plans to begin taxing virtual assets in January 2027... implementation has been delayed three times."
"The new law — the Virtual Asset User Protection Act — was officially approved on July 18, 2023... imposes stricter requirements for digital asset exchanges."
Web Sources (4)
Sources discovered via web search grounding
Search queries used (5)
- South Korea crypto tax postponement 2025 2027
- South Korea cryptocurrency regulation Virtual Asset User Protection Act 2024 2025
- South Korea VASP registration requirements FSC KoFIU
- South Korea crypto exchange license list 2024
- South Korea ban on privacy coins and ICOs status 2025
https://www.theblock.co/post/306169/south-korea-inaugural-crypto-law-goes-into-full-effect
https://notabene.id/world/south-korea
https://www.fsc.go.kr/eng/pr010101/75563
https://www.cpomagazine.com/data-privacy/south-koreas-new-crypto-aml-law-bans-trading-of-privacy-coins-monero-zcash/