South Korea is moving to accelerate work on its Digital Asset Framework Act as lawmakers push for completion this fall. Financial Services Commission Chairman Kim Byoung-hwan announced during a National Assembly meeting on August 24 that the government will step up consultations, though he did not provide a firm submission date. When Democratic Party lawmaker Lee Kang-il pressed for completion during the fall session rather than extending into next year, Kim responded he would 'do his best' to speed up discussions. The proposed law forms the second phase of South Korea's virtual-asset regulatory framework and is expected to set rules covering stablecoin issuance, virtual asset service providers, disclosures, internal controls and other parts of the domestic crypto market.
South Korean lawmakers have proposed significant expansion of regulatory powers to combat unregistered cryptocurrency operations. National Assembly member Eom Tae-young and nine other lawmakers introduced Bill No. 2220655, which seeks to strengthen oversight of unregistered virtual asset service providers. The bill would expand the Korea Financial Intelligence Unit (KoFIU) authority to respond to violations by unregistered crypto companies, including so-called private cryptocurrency exchange offices. The bill's sponsors cited concerns that such platforms could be used for money laundering, illegal cross-border transfers, and unauthorized foreign exchange transactions. Lawmakers have already introduced proposals for a Digital Asset Framework Act but are still waiting for the government to formally submit its version, with as many as 10 pending digital-asset bills potentially being combined into a government and ruling-party package during 2026.
South Korea's Financial Supervisory Service has deployed a real-time AI system that combines generative AI and machine learning to scan trading data, news, and online content for suspected crypto price manipulation. According to the FSS announcement on August 20, the platform automates parts of the process that previously required investigators to examine large volumes of exchange data manually. The system first searches for assets showing abnormal changes in price or volume, then compares the activity with patterns drawn from previous investigations to focus on trades with features of known market abuse forms. The initiative aims to overcome severe resource constraints faced by human investigators, who must monitor thousands of digital assets trading around the clock across multiple exchanges.
Stablecoins are expected to take a prominent place in the second-stage legislation as South Korean regulators work through questions over who should be permitted to issue won-denominated tokens and how issuers should be supervised. The Bank of Korea has backed a bank-led model for won stablecoins, arguing that banks should take the leading role during the early stages of issuance because of possible effects on payments, monetary policy and financial stability. Government agencies have spent months discussing the structure of a domestic stablecoin framework, including licensing, reserve requirements and the roles of banks and non-bank companies. The July blockchain policy plans included work toward a framework for spot crypto ETFs alongside stablecoin rules and tokenized securities, with a formal legal structure required before locally offered spot Bitcoin ETFs could operate under South Korea's securities market rules.
Rules affecting virtual asset service providers are changing as authorities build separate licensing and reporting systems for crypto-related financial services. South Korea has already revised its Foreign Exchange Transactions Act to bring cross-border virtual-asset transfers under a formal regulatory regime, with the amended law promulgated on June 2 and scheduled to take effect in December after a six-month grace period. Under the framework, companies providing cross-border virtual-asset transfer services will have to register with the Ministry of Economy and Finance and report overseas transactions through the Bank of Korea's foreign-exchange reporting system. Authorities have also been reviewing VASP licensing requirements to determine whether fintech companies should be allowed to provide some cross-border virtual-asset services alongside registered crypto exchanges and custodians.
Lawmakers are pushing for accelerated action citing concerns about falling behind other major financial markets. Lee Kang-il argued during the National Assembly meeting that South Korea risks falling behind while its government proposal remains unfinished, pointing to regulatory work underway in the United States where financial agencies are defining how existing securities and derivatives laws apply to digital assets. He cited the U.S. Securities and Exchange Commission's clarification of digital asset treatment by separating them into categories including commodities, securities and stablecoins, along with developments at the Commodity Futures Trading Commission involving perpetual futures linked to Bitcoin spot prices. 'The digital-asset market has moved beyond simple coin trading and into the financial system,' Lee noted, emphasizing the urgency of completing the legislative framework.
The proposed changes represent the latest in South Korea's comprehensive regulatory tightening of the cryptocurrency sector. The FSC had already told lawmakers in July that it planned to prepare a unified proposal with the ruling Democratic Party, with the proposed consolidated framework expected to cover stablecoins, exchanges, disclosure obligations, internal controls and requirements designed to improve the resilience of systems operated by digital-asset businesses. The July roadmap jointly announced by the FSC, Bank of Korea, Financial Supervisory Service and Korea Securities Depository linked stablecoin legislation with plans for central bank digital currency pilots, tokenized government bonds and changes designed to increase the international use of the won. The FSS plans to continue upgrading its market oversight toolkit with upcoming iterations focusing on integrating tools to trace cross-exchange fund flows and monitor on-chain blockchain transactions.
