Crypto operators to be screened for controlling shareholders' criminal records… Amendments to the Act on Reporting and Using Specified Financial Transaction Information passed

Going forward, when virtual asset service providers file for registration, screening will also cover the criminal records of controlling shareholders.

The Financial Services Commission (FSC) said on the 29th that an amendment to the "Act on Reporting and Using Specified Financial Transaction Information" (the Specified Financial Information Act) passed the plenary session of the National Assembly.

The amendment will significantly tighten entry regulations for the virtual asset market. Specifically, when virtual asset service providers file for registration, the scope of criminal record screening will be expanded from existing representatives and executives to include controlling shareholders as well.

The list of laws subject to criminal record screening has also been expanded. In addition to the existing Specified Financial Information Act, the Act on the Regulation and Punishment of Criminal Proceeds Concealment, the Act on Prohibition of Financing for Terrorism, the Foreign Exchange Transactions Act, and the Capital Markets Act, the Act on the Prevention of Illicit Trafficking in Narcotics, the Monopoly Regulation and Fair Trade Act, the Act on the Aggravated Punishment of Specific Tax Crimes, the Act on the Aggravated Punishment of Specific Economic Crimes, and the Act on the Protection of Virtual Asset Users have been added. In addition, even violations of other laws will be subject to review if a sentence of imprisonment or heavier is imposed.

Operators' financial soundness and internal control systems will also be subject to review. The Korea Financial Intelligence Unit (KoFIU) under the FSC will, under the amendment, be able to comprehensively assess virtual asset service providers' financial soundness, social credibility, and compliance with laws and regulations. A new conditional approval system will be introduced when accepting registrations, establishing a legal mechanism to control risk factors in business operations for anti-money laundering and user protection.

Sanctions on former employees of financial firms will also be strengthened. First, a new provision requires KoFIU to notify the CEO of the relevant financial company of the details of sanctions against former officers and employees found to have violated the Specified Financial Information Act. The financial company must convey the information to the retiree and is required to preserve related records.

The FSC said the amendments would help block unqualified operators, including those with criminal histories, from entering the market.

The amendments will take effect around August this year, six months after promulgation. KoFIU plans to revise subordinate regulations and prepare industry guidelines before the amendments take effect.