South Korea to Allow Institutional Investors to Enter Crypto Market in 2025

South Korea Plans to Allow Institutional Investors in Crypto Markets

South Korea’s Financial Services Commission (FSC) is preparing to ease restrictions on institutional crypto trading, paving the way for corporate investors to access the digital asset market.

This action comes after the passing of the Virtual Asset User Protection Act in July 2024, designed to safeguard investors and curb unfair practices.

Despite no formal ban on institutional crypto trading, the current regulations prevent institutions from opening accounts with local exchanges.

Banks were instructed not to facilitate corporate crypto trading, citing concerns over anti-money laundering (AML) compliance and the volatile nature of cryptocurrencies.

However, the FSC is gradually addressing these concerns, starting with non-profit organizations, which will be the first institutions allowed to open real-name accounts with crypto exchanges.

The goal is to extend this privilege to other corporate entities.

This phased approach is part of the broader strategy to safely integrate institutional players into the market while ensuring transparency and compliance with regulatory standards.

Virtual Asset Protection and Regulatory Overhaul

The introduction of the Virtual Asset User Protection Act has been pivotal in reshaping the country’s regulatory landscape for cryptocurrencies.

The law emerged in response to global scandals such as the FTX crash, which resulted in losses between $8 billion and $10 billion.

These events highlighted the need for a comprehensive framework to protect investors and prevent unethical trading practices.

According to Kwon Dae-young, Secretary-General of the FSC, the goal is to align South Korea’s regulatory approach with global trends that are shifting from restrictive to more enabling, especially across Asia.

Kwon said:

“We need to discuss how to create listing standards, what to do with stablecoins, and how to create rules of conduct for virtual asset exchanges.”

Kwon Dae-young, the Financial Services Commission Secretary-General, outlined the 2025 business plan at the Seoul Government Complex in Jongno-gu.

The FSC’s long-term plans include expanding the scope of regulations to include token listings, stablecoins, and broader crypto exchange operations.

Loosening of Ownership Restrictions for Fintech Companies

The FSC also announced plans to relax restrictions on financial holding companies’ ownership of fintech platforms.

Since the introduction of ownership limits in 2000, financial holding companies have been restricted to a maximum 5% stake in fintech firms, unless the fintech company is a subsidiary.

Now, the regulator is proposing to raise this limit to 15%, aiming to foster investment in fintech while ensuring that financial holding companies can collaborate more effectively with emerging tech firms.

This change is expected to meet the needs of both fintech companies looking for investment and financial firms seeking to engage with innovative technologies in a structured manner.

The FSC envisions an environment where collaboration between financial groups and fintech companies is encouraged, potentially expanding opportunities in areas like automated financial advice and digital investment services.

Crypto Taxation and Future Regulations

In addition to these changes, South Korea’s government has pushed forward with a controversial 20% crypto tax set to come into effect in 2025.

Originally planned for 2022, the implementation of this tax had been delayed due to opposition from the industry.

However, following the reassessment of market conditions, the government is moving ahead with its crypto tax initiative.

The FSC’s next regulatory steps will focus on addressing the operational challenges of crypto exchanges, such as the standards for token listings and the management of stablecoins.

These developments align with President Yoon Suk-Yeol’s election promise to strengthen South Korea’s position as a leading hub for cryptocurrency trading in Asia.

Institutional Crypto Trading Faces Growing Demand

As part of the regulatory overhaul, South Korea’s FSC is looking to make the country’s crypto market more accessible to institutional investors.

The FSC has already begun discussions with the Digital Asset Committee to develop a new regulatory framework that will allow companies and non-corporate organisations to participate in crypto trading, a move expected to attract significant corporate interest in digital currencies.

A senior official explained:

“Real-name accounts allow for greater transparency, ensuring that transactions are traceable to real-world identities.”

This change will help companies to engage in crypto trading while complying with the necessary AML and know-your-customer (KYC) regulations, making the market safer and more compliant with international standards.

Potential Launch of Crypto ETFs and Security Tokens

The plans also include a potential launch of spot cryptocurrency exchange-traded funds (ETFs) in 2025.

Chairman of the South Korea Exchange, Jeong Eun-bo, confirmed this, saying that the exchange would “explore” crypto ETF approval in 2025.

This move would offer both retail and institutional investors a new way to gain exposure to the crypto market without directly trading the assets.

Jeong further emphasised that the exchange would also look into new business opportunities, including security token offerings, as the market continues to evolve.