South Korea Revamps Cryptocurrency Regulations to Tackle Crime and Strengthen Digital Economy Leadership

South Korea Steps Up Fight Against Crypto Crime

South Korean authorities are ramping up their response to crimes involving digital currencies, signaling a renewed dedication to tightening anti-money laundering (AML) regulations and addressing security gaps in the cryptocurrency sector. The Financial Intelligence Unit (FIU) has unveiled plans for more rigorous AML protocols, which include the ability to freeze accounts preemptively in cases of serious violations. These sweeping reforms, anticipated to be in place by mid-2026, will require changes to existing laws and greater cooperation with international organizations such as the Financial Action Task Force. This initiative represents the most significant update to AML regulations since the 2021 amendments to the Special Financial Information Act.

High-Profile Hacks Drive Regulatory Action

The push for reform has gained urgency following major incidents, most notably a $30 million cyberattack on Upbit, the country’s largest cryptocurrency exchange. Investigators have linked the breach to the Lazarus Group, a notorious North Korean hacking organization. The attack coincided with a press conference announcing Naver Corp.'s $10.3 billion acquisition of Upbit’s parent company, Dunamu Inc., prompting speculation about the timing. Authorities are probing the event, noting similarities to a 2019 hack also attributed to Lazarus. In response, Upbit halted all deposits and withdrawals and has committed to reimbursing affected users from its own reserves to safeguard customer assets.

This incident underscores the ongoing threat posed by state-backed cybercriminals and highlights the necessity for exchanges to implement robust security measures.

Regulatory Fallout from Terra Collapse

The collapse of the Terra ecosystem in 2022 continues to influence South Korea’s approach to crypto oversight. Do Kwon, Terraform Labs’ co-founder, is awaiting sentencing in the United States for his involvement in the $40 billion market crash. His legal team is seeking a sentence of no more than five years, and he has agreed to forfeit $19 million. The case is part of a broader crackdown on crypto industry misconduct, as seen in the 25-year prison sentence handed to former FTX CEO Sam Bankman-Fried. South Korean prosecutors are independently seeking up to 40 years in prison for Kwon, reflecting the nation’s tough stance on accountability in the digital asset space.

Stablecoin Oversight and Global Alignment

The Financial Services Commission (FSC) and the Bank of Korea (BOK) are also advocating for tighter rules on stablecoins, pushing for enhanced liquidity requirements and stricter oversight to protect financial stability. The BOK has argued that banks should be the primary issuers of stablecoins, warning that allowing non-bank entities could weaken regulatory controls. This position is in line with international trends, such as Switzerland’s recent delays in implementing crypto tax-sharing policies.

Trade Policy and Economic Strategy

Beyond the digital asset sector, South Korea is also addressing international trade concerns. Lawmakers have introduced a special bill aimed at reducing U.S. tariffs on Korean automobiles to 15%, contingent upon a $350 billion investment commitment in American industries. This move highlights the critical role of the U.S. market, which is expected to account for nearly half of South Korea’s $70.8 billion in vehicle exports in 2024.

Conclusion: A Comprehensive Approach

Through a combination of regulatory reforms, stronger enforcement, and international cooperation, South Korea is taking decisive steps to protect its digital economy. These efforts aim to position the country as a leader in the global digital landscape while minimizing the risks associated with cryptocurrency-related crime and systemic vulnerabilities.