Cryptoassets for investment and financing

Regulatory threshold

What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?

Cryptoassets may be subject to regulation depending on whether they fall within the jurisdiction of a particular existing regulation. For example, if a cryptoasset is considered a security, then it may be regulated by the Financial Investment Service and Capital Market Act. If a cryptoasset is considered a payment instrument, then it may be regulated by the Foreign Exchange Transaction Act and the Electronic Financial Transactions Act. Cryptoassets that are considered goods may be regulated by the Value Added Tax Act and cryptoassets considered to be criminal proceeds to be confiscated may be regulated by the Criminal Act or the Criminal Proceeds Concealment Regulation and Punishment Act.

Investor classification

How are investors in cryptoassets classified and treated differently?

Owing to the absence of cryptoasset-specific legislation, there is no clear difference in the treatment or classification by type of investor. However, to the extent a particular cryptoasset is deemed to be a security, the Financial Investment Service and Capital Market Act’s (FISCMA) classification of different classes of investors may be applied. For example, FISCMA classifies investors as either ordinary or accredited. Accredited investors include financial institutions as outlined in the Presidential Decree of FISCMA, and individuals meeting certain requirements such as the income of 100 million won or more per year and assets of 500 million won or more.

Initial coin offerings

What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

On 29 September 2017, a joint agency task force led by the Financial Services Commission stated the government’s intention and policy to ban all kinds of initial coin offerings regardless of the underlying technology. Despite this announcement, no actual ban or prohibition has been made into legislation. Although the announcement lacks legal effect, the pessimistic view of the government has caused several industry players to exit the Korean market to pursue their initial coin offerings using offshore vehicles, partially out of fear that the government would use some other existing regulatory framework to indirectly enforce this ban.

A blockchain project filed suit in the Constitutional Court claiming that the task force’s announcement infringed basic human rights such as the freedom of occupation, the rights to equality and property, each of which is guaranteed under the Constitutional Law, without any legal basis. This suit is currently ongoing.

Security token offerings

What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

There is no legislation specifically regulating STOs, although we note the practical effects of the 2017 announcement referred to in ‘Initial coin offerings’. In theory, a public offering of cryptoassets that constitute securities as defined in the Financial Investment Service and Capital Market Act (FISCMA) would be subject to a range of restrictions and requirements, including the requirement to submit a securities registration statement to conduct a public offering of securities. A public offering occurs when 50 or more persons are solicited or the securities could be resold to more than 50 persons even if the initial purchasers are less than 50 persons.

For a cryptoasset to constitute a security under FISCMA, it must first constitute a financial investment instrument. Article 3 of FISCMA defines a ‘financial investment instrument’ as:

  • an instrument constituting a right to be acquired by an investor;
  • consideration for a commitment to pay money or to give any other thing of value, at a specific time, whether at present or in future;
  • an intent to avoid a loss or seek gain; or
  • entailing a risk of loss of the entire principal investment amount.


Also, a financial investment instrument must fall within one of the categories of financial investment instruments listed in FISCMA; namely, securities (further categorised as debt securities, equity securities, beneficiary securities, investment contract securities, derivatives-combined securities and securities depositary receipts) or derivatives. Cryptoassets taking the nature of securities are most likely to be considered as an investment contract security, as opposed to the other types of securities.

An investment contract security refers to instruments bearing the indication of a contractual right under which a specific investor is entitled to the profits earned, or liable for losses sustained, depending upon the results of a joint venture with a third person, including other investors, that is mainly operated by a third person and in which the specific investor invests money, etc.


What rules and restrictions govern the issue of, and investment in, stablecoins?

There are no specific rules or restrictions that regulate stablecoins. Stablecoins constituting securities under FISCMA may be regulated as such, and businesses involving stablecoins constituting payment means may be subject to the registration requirements provided under the Electronic Financial Transactions Act.


Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

Airdrops may raise Monopoly Regulation and Fair Trade Act (MRFTA) issues, which is enforced by the Korea Fair Trade Commission (KFTC). Businesses should not unfairly solicit or coerce the customers of its competitors if such solicitation or coercion is likely to have anticompetitive effects beyond what is normally accepted in regular and desirable trade practices.

Whether any solicitation or coercion is considered acceptable depends on whether the KFTC deems that the efficiency enhancing effect of such behaviour (ie, the conferral of benefits to consumers) outweighs its anticompetitive effects. Airdrops may be viewed as having an anticompetitive effect in that the free distribution of cryptoassets may unfairly disadvantage competitors who charge for their cryptoassets. However, airdrops are a common marketing tool in the Korean cryptoasset market in Korea. As long as the airdrop is conducted reasonably and under accepted market norms, airdrops in and of themselves should not raise significant anti-competitive concerns.

Also, to the extent it is foreseeable that an airdrop will result in a drop in the market price of a cryptoasset immediately following the airdrop, and investors are likely to suffer a loss, then the KFTC may determine that the airdrop does not constitute a desirable trade practice within the meaning of the MRFTA and may issue a corrective order or impose a fine not exceeding 2 per cent of the sales that were affected by the unlawful act.

Advertising and marketing

What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?

If cryptoassets are sold via a ‘multi-level marketing business’ without first registering with the KFTC, that sale may violate the Act on Door-to-Door Sales (the Visit Sales Act). The Visit Sales Act requires that a multi-level marketing business entity is required to first register with the KFTC, a violation of which may subject the violator to imprisonment for not more than seven years or a fine not exceeding 200 million won or an amount equal to three times the total transaction amount.

The term ‘multi-level marketing’ refers to the sale of goods or services through a sales organisation that has a recruitment scheme under which salespersons solicit other persons to join as subordinate salespersons by three or more levels and pay a bonus to salespersons in connection with the:

  • transaction performance of selling goods or services by the salesperson’s subordinate salespersons; or
  • outcomes of organisational management, education and training of the salesperson’s subordinate salespersons. 


If anyone makes any indication or advertisement on his or her business for unspecified multiple persons to carry out any cryptoasset-related ‘fundraising business without permission’ as defined under the Fundraising Act, he or she may be subject to imprisonment of not more than two years or a fine not exceeding 20 million won.

Trading restrictions

Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

No, individual investors are not subject to any express restrictions, although they may face practical restrictions such as foreign exchange restrictions when attempting to transfer cryptoassets overseas and potentially limited access to banking services concerning their trading activities. Brokerage and securities firms that deal in the trading of cryptoassets that are securities may be required to register their business with the Financial Services Commission.


How are crowdfunding and cryptoasset offerings treated differently under the law?

Crowdfunding involving securities (as opposed to crowdfunding consisting of loans or gifts) is regulated by the Financial Investment Service and Capital Market Act and may be exempt from the securities registration statement requirements thereunder in the event of a securities offering below a certain threshold amount. The crowdfunding broker must register with the Financial Services Commission, meeting specific capital requirements, including other requirements about personnel and investor safeguards. There are also limitations on the investment amount for each retail investor, which varies depending on income level. 

Cryptoasset offerings are not considered a form of crowdfunding and to the extent the cryptoasset is security, would be subject to the general provisions regulating public offerings of securities.

Transfer agents and share registrars

What laws and regulations govern cryptoasset transfer agents and share registrars?

There are no such laws and regulations in Korea.

Anti-money laundering and know-your-customer compliance

What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

The Financial Services Commission published its Guidelines on Anti-Money Laundering regarding Virtual Currency (the AML Guidelines) on 23 January 2018, under which financial institutions would be required to conduct KYC checks on customers who operate a cryptoasset exchange or business, including enhanced due diligence to confirm whether customer assets are properly segregated, and also obliged the financial institutions to report suspicious transactions to the Korea Financial Intelligence Unit (KoFIU) under the Act on Reporting and Use of Certain Financial Transaction Information (ARUCFTI or the AML Act).

If a financial institution is unable to verify the identity of a customer because of the customer’s refusal to provide personal identifying information absent justifiable cause, the financial institution is required to either reject or suspend the transaction and make a suspicious transaction report to the KoFIU.

Examples of financial transactions deemed to be a ‘suspicious transaction’ under the AML Guidelines requiring further investigation are as follows:

  • distributed financial transactions: when a customer pools funds from a large number of individuals and remits the funds to a cryptoasset business entity, and the customer later returns funds to the individuals after receiving the funds from the cryptoasset business entity after a certain period; and
  • financial transaction amount: when a customer makes a financial transaction above 10 million won per day or 20 million won over seven days (or where the financial transaction amount is below the aforementioned limits but the financial institution determines that there is a risk of money laundering based on its customer due-diligence procedures).


A company that launches an initial coin offering may be considered a cryptoasset business entity under the AML Guidelines, and, if the company receives payment of the purchase price in fiat currency into its bank account, this transaction may be reported to KoFIU as a suspicious transaction under the ARUCFTI and the AML Guidelines.

Accepting the FATF 2019 Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, the AML Act was amended by the National Assembly on 25 March 2020, with an effective date of 25 March 2021. The key amendments are the classification of the virtual asset services into the trading of virtual assets, the exchange between virtual assets, transfer of virtual assets, storage and management of virtual assets, and mediation and brokerage of trading or exchanges, and that all virtual asset companies must file a report with the Korea Financial Intelligence Unit (FIU) before starting operations. To file a report, a financial institution must open a real-name bank account and obtain information security management system certification from KISA.

Virtual asset service providers who were already operating a business before the enforcement date of the law can push back the filing period by six months, completing their filings by 25 September 2021.

Under the amendments, revisions to the enforcement ordinance have been announced, and public opinion on the amendment is currently being solicited. The main revision to the enforcement ordinance is that virtual asset companies that do not conduct fiat transactions are exempted from the requirement to open a real-name bank account and that the enforcement of the Travel Rule is postponed for another year, until 25 March 2022.

Sanctions and Financial Action Task Force compliance

What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?

The Act on Reporting and Use of Certain Financial Transaction Information and its Presidential Decree authorises the head of the FIU to provide AML-related information to the heads of the Prosecutors’ Office, the National Tax Authority, the Financial Services Commission and other agencies when deemed necessary. Also, the FIU may supervise financial institutions (including cryptoasset service providers under the amendment to the AML Act ) and issue orders or instructions to financial institutions, and financial institutions found to violate the AML regulations are subject to criminal penalties and administrative fines.

Law stated date

Correct on

Give the date on which the above content is accurate.

9 November 2020.