South Korea's Financial Services Commission announced plans to overhaul the financial regulatory sandbox to make it more fintech-friendly, focusing on lowering entry barriers for startups and strengthening exit strategies into regulated finance after the sandbox ends. According to the FSC, the changes would allow more innovative financial and blockchain-based services to seek regulatory exemptions. The decision was outlined during a recent event titled "Fintech Beyond Regulation, Financial Transformation That Changes the Game" held on June 19 in Seoul, where Vice Chairman Kim So-young emphasized the regulatory sandbox as a key framework for broadening participation in the financial industry and driving digital transformation of financial regulation. The commission detailed its broader strategy to adapt the financial regulatory framework to evolving market conditions and technological innovation.
The FSC has identified a significant decline in fintech participation in the current sandbox system, with fintech's share falling from 56% in 2019 to just 7% in 2025. Based on cumulative approvals as of the end of 2025, financial companies accounted for 76% while fintech represented only 14%. This concentration around financial companies has become a key concern for regulators seeking to diversify the innovation ecosystem. The commission plans to expand exclusive operating rights for promising innovative services, with current rights granted for up to 2 years after the sandbox ends being applied from the time of sandbox designation for services that need protection for innovative ideas.
The FSC plans to increase cost support for smaller businesses significantly, with the cap for test cost support being expanded to ₹200 crore from a maximum of ₹120 crore. The commission will also raise support for liability insurance premiums to 100% from up to 50%. Smaller businesses granted exclusive operating rights would see procedures simplified for support for commercialization costs. The measures also include revising screening standards for fintech startups, focusing on levels needed for consumer protection and basic service operations while reflecting qualitative factors such as growth potential and investment attractiveness. The system will be revised so conditions with low direct relevance to consumer protection or financial stability can be adjusted depending on how services are operating and market conditions.
South Korea's Financial Intelligence Unit has referred approximately 40 unregistered virtual asset service providers to investigative authorities and issued warnings to consumers about fraud, hacking, and money laundering risks. According to the FIU, some overseas crypto platforms targeted Korean users through Telegram and KakaoTalk while attempting to conceal their domestic operations. The agency warned that unregistered operators fall outside the scope of South Korea's Virtual Asset User Protection Act and the Special Financial Transactions Act, leaving users vulnerable to personal data leaks, cyberattacks, and potential money laundering activities. The FIU also reported cases where private currency exchange businesses sold stablecoins to international students, tourists, and foreign workers, while some individuals received fees for advertising overseas virtual asset services through YouTube channels and Telegram groups.
The commission will bring forward the timing for reviewing regulatory improvements for innovative services to as early as 1 year from the start of service, from a typical 3 years and 9 months. It plans to review operating performance annually and push early institutional improvements for strong cases, with incentives for operators with strong demonstration results including additional points in formal licensing reviews or applying a fast-track process. The system will be revised so conditions with low direct relevance to consumer protection or financial stability can be adjusted depending on how services are operating and market conditions. The commission will also prepare standard guidelines containing response manuals by service operation and termination stage and establish grounds to revoke designation if a service is not launched within a certain period.
The expanded sandbox will specifically include the Virtual Asset User Protection Act, which was enacted in 2023, as confirmed by the Financial Services Commission. The commission plans to continue identifying laws eligible for regulatory exemptions for new sectors and services, including the Internet-only Bank Act and the Virtual Asset User Protection Act. The FSC will diversify review procedures based on the importance of agenda items, with general new innovative financial services continuing to undergo review by the Innovative Financial Review Committee and a commission resolution, but procedures being simplified for items with limited disagreements. The commission plans to complete tasks that don't require legal revisions within 2026 and push legislative work from the third quarter of 2026 for tasks requiring revisions to laws, including the Financial Innovation Act.
