Korea Study Urges Classifying DeFi, OTC Providers as Unauthorized Digital-Asset Operators

A research report commissioned by South Korea’s financial authorities recommends classifying providers that support decentralized finance, or DeFi, and over-the-counter, or OTC, trading as unauthorized digital-asset operators and restricting access and transactions by domestic users.

According to Digital Asset on October 2, the Korea Institute of Finance made the recommendation in a report submitted to the Financial Services Commission titled “Second-Phase Legislation and Anti-Money Laundering System Improvements Related to Stablecoins.”

The institute said it would be preferable not to explicitly designate DeFi and OTC support providers as direct regulatory targets. Instead, regulators should broadly interpret digital-asset business activities subject to anti-money laundering, or AML, and counter-terrorist financing, or CFT, rules and impose related obligations.

Most DeFi and OTC support providers fall into areas where regulatory jurisdiction is unclear, the institute said, making it difficult for any single country to exercise supervisory authority. It therefore recommended classifying them as unauthorized digital-asset operators and actively using measures such as limiting domestic users’ access and restricting transactions by business operators.

The report also proposed setting standards for determining whether offshore operators are operating without registration. The institute said guidelines are needed so domestic users and businesses can determine whether an operator is unregistered, and so it is clear that offshore operators serving Korean users are subject to domestic registration requirements.

It also raised the need to regulate stablecoin transactions conducted through personal wallets. The institute said the existing AML and CFT framework is difficult to apply to cold wallets and peer-to-peer wallet transactions. It recommended that authorities review, over the medium to long term, whether to impose reporting and registration requirements on platform and software providers that support transfers of stablecoins between wallets.