SEOUL, South Korea – Financial authorities have initiated a comprehensive overhaul of the nation’s digital asset regulatory framework, signaling a potential end to the restrictive “one-exchange, one-bank” policy that has defined South Korea’s cryptocurrency landscape for years. According to exclusive reporting from The Herald Business, this deregulation push aims to revitalize the market and could permit digital asset derivatives by year-end.
South Korea Crypto Regulations: The Current Framework and Proposed Changes
South Korea’s cryptocurrency ecosystem currently operates under stringent regulations established during the 2017-2018 market boom. The “one-exchange, one-bank” policy requires each cryptocurrency exchange to partner with a single bank for real-name verification accounts. This system created significant barriers to entry and limited competition. Furthermore, authorities have maintained a cautious stance toward derivatives and complex financial products involving digital assets.
The proposed regulatory shift represents a fundamental change in approach. Government officials from both the Fair Trade Commission and Financial Services Commission are actively discussing the scope and timing of these deregulation measures. A senior government official confirmed that relevant ministries are expediting the process by dividing tasks into short- and long-term goals. The official emphasized the government’s commitment to making a formal announcement before the year concludes.
The Driving Forces Behind Regulatory Reform
Several factors are driving this regulatory reassessment. First, South Korea has established itself as a global cryptocurrency hub with high retail participation rates. Second, neighboring jurisdictions like Japan and Singapore have implemented more progressive regulatory frameworks. Third, the upcoming implementation of the Travel Rule for virtual asset service providers requires updated compliance systems. Finally, the government recognizes the economic potential of properly regulated digital asset markets.
Potential Impacts of Ending the One-Exchange, One-Bank Policy
The elimination of the “one-exchange, one-bank” requirement would fundamentally reshape South Korea’s cryptocurrency exchange landscape. Currently, this policy creates several market distortions:
- •Limited Competition: Smaller exchanges struggle to secure banking partnerships
- •Consumer Inconvenience: Users must maintain multiple bank accounts for different exchanges
- •Operational Risks: Exchange failures can disrupt banking services for all users
- •Innovation Barriers: New financial products face excessive regulatory hurdles
Industry analysts predict that deregulation would immediately increase competition among exchanges. Consequently, consumers would benefit from improved services, lower fees, and enhanced security measures. Additionally, financial institutions could develop more sophisticated cryptocurrency custody and banking services.
Digital Asset Derivatives: A New Frontier
The potential approval of digital asset derivatives represents another significant development. South Korean regulators have historically prohibited futures, options, and other derivative products tied to cryptocurrencies. This cautious approach stemmed from concerns about market manipulation and retail investor protection during periods of extreme volatility.
However, global financial markets have increasingly integrated cryptocurrency derivatives. Major exchanges like CME Group and Binance offer regulated derivatives products. South Korean institutions recognize that prohibiting these instruments may push trading to offshore, less-regulated platforms. A controlled introduction of derivatives could provide institutional investors with necessary hedging tools while bringing more trading volume to domestic, regulated venues.
| Period | Regulatory Approach | Key Policies |
|---|---|---|
| 2017-2018 | Initial Regulation | Real-name verification, ICO ban |
| 2019-2021 | Strict Enforcement | One-exchange one-bank, leverage limits |
| 2022-2024 | Framework Development | Digital Asset Framework Act discussions |
| 2025 (Proposed) | Market Revitalization | Deregulation, derivatives approval |
Global Context and Comparative Analysis
South Korea’s regulatory evolution mirrors broader global trends in digital asset governance. The European Union has implemented its Markets in Crypto-Assets (MiCA) regulation, establishing comprehensive rules across member states. Meanwhile, the United States continues its dual approach of enforcement actions and legislative proposals. Hong Kong and Singapore have positioned themselves as crypto-friendly hubs with clear regulatory guidelines.
South Korea’s proposed changes would place it between the comprehensive EU framework and the more permissive Singaporean approach. This balanced position could attract both institutional investment and innovative startups. Importantly, the reforms align with Financial Action Task Force (FATF) recommendations for virtual asset service provider regulation.
Expert Perspectives on Market Implications
Financial technology experts highlight several potential outcomes from these regulatory changes. First, established exchanges like Upbit and Bithumb would likely expand their service offerings. Second, traditional financial institutions might enter the digital asset custody and trading space. Third, blockchain innovation could accelerate with clearer regulatory pathways. Finally, retail investor protection mechanisms would need enhancement alongside deregulation.
Market analysts note that South Korea’s cryptocurrency trading volumes have remained substantial despite regulatory restrictions. The proposed changes could unlock additional institutional participation while maintaining necessary consumer protections. The government appears committed to fostering innovation without compromising financial stability.
Implementation Timeline and Procedural Considerations
The government’s approach involves both short-term and long-term regulatory adjustments. Immediate changes might include relaxing the one-exchange, one-bank requirement through revised banking guidelines. Medium-term reforms could involve amendments to existing financial regulations. Long-term objectives likely include comprehensive digital asset legislation currently under parliamentary consideration.
Procedurally, the Financial Services Commission must coordinate with multiple stakeholders. These include the Fair Trade Commission for competition aspects, the Korea Financial Intelligence Unit for anti-money laundering compliance, and the Bank of Korea for monetary policy considerations. Additionally, the National Assembly’s ongoing discussions about the Digital Asset Framework Act will influence the final regulatory shape.
Risk Management and Consumer Protection Measures
Deregulation does not mean the absence of regulation. Authorities emphasize that enhanced consumer protection mechanisms will accompany market liberalization. These may include:
- •Improved disclosure requirements for cryptocurrency products
- •Enhanced custody standards for exchange-held assets
- •Stricter advertising guidelines to prevent misleading claims
- •Comprehensive investor education initiatives about digital asset risks
The government appears committed to avoiding the speculative excesses that characterized earlier cryptocurrency booms. Instead, authorities aim to build sustainable market infrastructure that supports technological innovation while protecting financial consumers.
Conclusion
South Korea’s proposed crypto regulatory overhaul represents a significant policy shift toward market revitalization. The potential elimination of the one-exchange, one-bank policy and approval of digital asset derivatives could transform the nation’s cryptocurrency landscape. These changes reflect both global regulatory trends and domestic economic considerations. As authorities work toward year-end announcements, market participants should prepare for a more competitive and innovative digital asset ecosystem. The success of these South Korea crypto regulations will depend on balancing market development with consumer protection in this rapidly evolving sector.
FAQs
Q1: What is the “one-exchange, one-bank” policy in South Korea?
The policy requires each cryptocurrency exchange to partner with only one bank for real-name verification accounts. This system limits competition and creates user inconvenience but was implemented for enhanced monitoring and security.
Q2: When will these regulatory changes take effect?
Government officials aim to announce detailed plans by the end of the current year. Implementation would likely occur in phases, with some changes possibly taking effect in early 2026 following necessary procedural steps.
Q3: How will digital asset derivatives be regulated?
Authorities have not released specific derivative regulations yet. However, they will likely involve position limits, disclosure requirements, and investor suitability standards similar to traditional financial derivatives.
Q4: Will these changes make cryptocurrency trading riskier for retail investors?
While deregulation increases product availability, authorities emphasize that enhanced consumer protection measures will accompany market liberalization. Investor education and improved disclosure requirements should help mitigate additional risks.
Q5: How do these changes compare to regulations in other countries?
South Korea’s approach appears more comprehensive than the United States’ current state-by-state regulation but less centralized than the European Union’s MiCA framework. The changes would position South Korea competitively with Singapore and Hong Kong as Asian digital asset hubs.