South Korea will tighten monitoring of cross-border virtual asset transfers and overhaul its framework for fintech-based foreign exchange services, in a move aimed at blocking the use of crypto to circumvent currency rules and at responding to a shifting foreign exchange landscape.
The Ministry of Finance and Economy said on the 7th that it would put a draft amendment to the enforcement decree of the Foreign Exchange Transactions Act out for public notice. The amendment follows revisions to the act passed in June, fleshing out matters delegated by the law and narrowing blind spots in illegal foreign exchange transactions.
The draft first defines the scope, registration requirements and procedures, and reporting obligations for a newly created "virtual asset transfer business" covering cross-border crypto movements. The category includes transfers between domestic and overseas virtual asset service providers as well as transfers between domestic providers and private wallets.
Operators must register in advance with the finance minister after meeting requirements that include securing the computing systems needed for the business and employing at least two people with experience in foreign exchange operations or who have completed relevant training. Records of virtual asset transfers must be reported to the Bank of Korea, the central agency for foreign exchange information, through the foreign exchange computer network. The data will be shared with the National Tax Service, the Korea Customs Service, the Financial Supervisory Service and the Korea Financial Intelligence Unit (FIU) for use in investigations into illegal foreign exchange transactions.
The framework for fintech-based foreign exchange services will also be revised. The existing small-sum overseas remittance business and other specialized foreign exchange businesses will be merged into an "overseas payment services" category, with its scope and registration requirements reorganized.
The new category will comprise six business lines: small-sum overseas remittance, along with electronic payment settlement agency, electronic money and prepaid payment services — previously subcategories of other specialized foreign exchange businesses — plus two new lines, overseas payment escrow services and overseas electronic billing and payment services. The amendment also establishes a system under which the Financial Supervisory Service conducts inspections and the Financial Services Commission oversees the sector.
The transfer of foreign-currency prepaid payment instruments to third parties, until now operated through the financial regulatory sandbox, will be formally institutionalized. Once the decree is finalized, the government plans to amend the foreign exchange regulations to allow such transfers up to a set amount.
Entry requirements and penalties for currency exchange businesses will be tightened. Executives must not be subject to disqualification under the Act on Corporate Governance of Financial Companies, and a new registration requirement will mandate equity capital of at least 10 million won, or a higher amount to be specified by the finance minister.
Serious violations — including voice phishing, illegal payments for trade transactions and crypto-linked underground remittances — will be subject to a one-strike-out rule allowing registration to be revoked. The ceiling on fines imposed in lieu of business suspension will also rise to as much as 100% of the profit gained from the violation, up from the current 70%.
The Korea Customs Service will see its inspection powers over foreign exchange transactions partly expanded. At present it can inspect parties and related persons in import and export transactions and in associated service or capital transactions. Under the amendment, if it uncovers a violation during an inspection of import and export transactions, it will be able to extend the inspection to parties and related persons in the relevant service or capital transactions.
Separately, the deadline for filing an objection to the macroprudential stability levy will be extended to 30 days from 15 days, while the deadline for notifying the outcome will be adjusted to 14 days from 15 days. The levy will also be given a 10-year sunset period.
The draft decree is open for public comment until the 26th of this month. It will then go through regulatory review by the Office for Government Policy Coordination, examination by the Ministry of Government Legislation, and vice-ministerial and Cabinet meetings before taking effect on Dec. 3, in line with the implementation of the revised Foreign Exchange Transactions Act.
