This week, the Financial Services Commission, the main financial regulator in South Korea, published a legislative notice which proposed the partial revision of the Specialized Credit Finance Business Act. One of the proposals aims to prevent citizens from making credit card payments to overseas virtual asset exchanges. The notice also mentions that in future, "cooperation with international brands will be established and prevention of foreign currency outflow and money laundering will be strengthened," suggesting the intention to reinstate such payments at a later date.
Currently, the regulator only allows transactions involving virtual assets through deposit and withdrawal accounts with verified real names, but this law does not apply to foreign exchanges. According to the notice, the main reasons for the introduction of the ban are illegal overseas leakage of domestic funds, money laundering and the encouragement of speculative activities.
The FSC notice is to inform the public of the new plans in advance and offer companies and individuals the opportunity to submit their opinions on the matter by February 13, 2024. According to a local media news outlet, the amendment will be implemented within the first half of 2024 after the review of public feedback and resolution process.
If nothing changes and the amendment is approved as it is, South Korean citizens will face major difficulties when trading and buying crypto on foreign exchanges. However, this might be beneficial for major local exchanges, Bithumb and Upbit.
South Korean authorities have cracked down on unregistered foreign VASPs and intensified work on crypto legislation since the collapse of the country's largest crypto project, Terra, in May 2022. This summer, we Observed local lawmakers pass a law that regulates virtual asset operators in the country. The law, focused on conditions for the custody of user assets, prohibition of unfair trading practices and punishments for the infringement of those rules, will go into force in July this year.
The ongoing legislation process in the country aims to revive user trust in local crypto businesses and protect the industry from repeating old mistakes. Authorities believe that new comprehensive legislation is needed to create a healthy environment for further development. However, such limitations might prevent companies from outside of the country from participating and eventually create a closed ecosystem.
With luck, the local crypto community will convince the regulator with their input, and the final version of the amendments will be less restrictive on both users and foreign exchanges.
