South Korea to allow institutional crypto trading in H2

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Key Takeaways

• South Korea lifts “virtual ban” on institutional crypto investments.

• The rule change would allow registered institutional firms to open accounts on crypto exchanges.

• The FSC plans to build a more inclusive crypto regulatory environment in light of the new developments.

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South Korea's Financial Services Commission (FSC) announced that selected institutional investors will be permitted to open virtual asset trading accounts starting in the second half of the year. This move will enable approximately 3,500 corporate entities, including listed companies, to participate in a pilot test.

The FSC has recognized a strong demand from institutional investors, also referred to as qualified investors, to engage in blockchain-related business activities. This demand has influenced the decision to allow these entities to invest in cryptocurrencies. The commission also noted that this step is crucial to ensure South Korea keeps pace with other nations that are increasingly integrating virtual assets into their economies.

Despite the potential benefits, the FSC is aware of the risks associated with increased corporate participation in the virtual asset market. To address these concerns, the commission plans to implement enhanced safeguards. These include setting up transaction guidelines, which will aid banks in verifying transaction purposes and the origins of funds.

Additionally, virtual asset exchanges will be encouraged to use third-party custody and management services, and to improve the information disclosures available to investors.

Banks and virtual asset exchanges will be responsible for conducting detailed screenings of institutions that apply to open virtual asset trading accounts. The FSC has decided to initially exclude financial companies from this opportunity based on recommendations from its virtual asset committee, aiming to prevent potential risks from affecting the broader financial system.

For corporations not classified as qualified investors, the FSC has stated that further decisions will be contingent on an evaluation of the virtual asset market's development and the outcomes of the pilot test, along with other factors.

The institutional crypto investment push in South Korea will be carried out in phases, with more inclusive regulations set to take effect in the coming days.

To begin this process, the FSC intends to permit cryptocurrency trading for non-profit organisations. The commission also plans to work with the Digital Asset Committee, a policy advisory organisation under its purview.

The FSC is also considering amending the Financial Information Act as part of this regulatory evolution.

This amendment will implement a screening process for significant shareholders of virtual asset service providers to strengthen investor protection.