South Korea Tightens Screening of Crypto Firms’ Major Shareholders, Mandates Advance Notice of Changes

South Korea will tighten regulatory screening of major shareholders in virtual-asset service providers starting Aug. 20.

The Financial Intelligence Unit, or FIU, under the Financial Services Commission said Aug. 13 it will finalize and implement a revised reporting manual on Aug. 20, when amendments to the Act on Reporting and Use of Specific Financial Transaction Information take effect. The FIU and the Financial Supervisory Service revised the manual to reflect the amended law, its enforcement decree and supervisory rules introduced in January.

The authorities also held a briefing that day to explain the changes to the industry. Attendees included the Digital Asset eXchange Alliance, or DAXA, and 28 virtual-asset service providers registered under the law.

The amended law expands criminal-record screening in the reporting process for virtual-asset service providers to major shareholders, from the current scope of chief executives and executives. It also requires authorities at the review stage to determine whether applicants meet standards on financial condition, social credibility, and the organizational, staffing, equipment and internal-control systems needed to carry out anti-money-laundering duties.

The revised manual provides practical guidance on how companies should prepare for and comply with those requirements when filing. Under the updated manual, reviews of legal violations, financial condition and social credibility will cover major shareholders in addition to the business entity, its representative and executives.

Filings must include all major shareholders subject to disclosure, along with their real names, nationalities, and stock and equity holdings. Changes involving major shareholders will also move from the current requirement to report within 14 days after a change to a system requiring notice 30 days in advance.

Ha Ju-sik, director-general for system operation planning at the FIU, said the virtual-asset market now has a greater impact on the public and financial markets than it did in 2021, when South Korea introduced the reporting regime. To maintain trust in the market, operators and major shareholders need to be thoroughly vetted from the entry stage, he added.