South Korea Seeks to Ease Crypto Major-Shareholder Disqualification Rules for Minor Violations

South Korea’s Financial Services Commission is seeking to create exceptions that would let major shareholders of virtual-asset service providers avoid disqualification even if they receive criminal penalties for legal violations, when the penalties stem from vicarious liability provisions or involve minor offenses.

In a written response submitted to the National Assembly’s Political Affairs Committee, the FSC said it plans to add exceptions to the qualification screening standards for major shareholders of crypto firms, Newsis reported on Aug. 10. The plan reflects recommendations from the presidential Regulatory Rationalization Committee.

The FSC said it will revise the system by referring to precedents under the Capital Markets Act and the Online Investment-Linked Finance Business Act. Under the plan, criminal penalties tied to a major shareholder’s legal violations would be excluded from disqualification from registration if they were imposed under vicarious liability rules or involved minor breaches.

The move reflects industry concerns over amendments to the enforcement decree of the Act on Reporting and Use of Certain Financial Transaction Information, which take effect on Aug. 20. The revised decree adds records of violations of the Fair Trade Act, the Punishment of Tax Evaders Act and the Act on the Aggravated Punishment of Specific Economic Crimes to the grounds for disqualifying major shareholders of virtual-asset businesses. It also applies those standards not only to new registrations but also to renewal reviews conducted every three years.

The FSC also said it will pursue changes to network separation rules for the financial industry as the use of digital technologies such as blockchain and artificial intelligence expands. For financial companies with adequate security capabilities and AI capacity, it plans to seek to ease or lift network separation rules through a regulatory sandbox. It will also review regulatory changes for operations that require connections to external networks, including public blockchains.

On the use of won-based stablecoins, the FSC said it will continue consultations with relevant agencies while reviewing not only the Digital Asset Act but also related laws including the Foreign Exchange Transactions Act and the Act on Reporting and Use of Certain Financial Transaction Information. It also plans to draw on examples from major countries to devise measures to improve the interoperability and scalability of won stablecoins.

The FSC said it and the Financial Supervisory Service will monitor the impact of Upbit’s stablecoin fee-waiver policy on market competition. Any necessary institutional changes will be reflected in the legislative process for the Digital Asset Act.