South Korea’s Escalating Crypto Enforcement Raises New Risks for Investors

South Korea is intensifying its enforcement of digital assets, shifting how regulators investigate and pursue market participants. Authorities have expanded probes into unregistered exchanges, offshore trading flows, and alleged market-manipulation schemes, all of which point toward a more assertive enforcement agenda.

The second phase of the regulatory update centers on the Digital Asset Basic Act, which circulated in various draft forms throughout mid-2025. The proposed legislation would create a unified framework to strengthen oversight of stablecoin issuers, foreign virtual asset service providers (VASPs), and cross-border activities. Together with the first phase of reforms under the 2024 Act on licensing and reserve requirements, the draft Act—reportedly slated for legislative introduction in January 2026—would significantly expand the investigative authority of the Financial Services Commission (FSC) and other regulators, including the power to demand reporting, examine foreign operators serving Korean users, and pursue misconduct occurring in part outside Korea.

These developments do not merely tighten compliance expectations – they expand the categories of conduct that may trigger enforcement, investigations, and potential penalties. For investors, exchanges, custodians, and ecosystem participants, significant risk comes from how regulators interpret trading activity, liquidity movements, or governance decisions in hindsight.

1. Know the Rules. To avoid unexpected enforcement or licensing risks, companies with ties to Korea’s crypto market should regularly review the evolving regulatory framework—including licensing, reserve and capital thresholds, stablecoin definitions, VASP registration, and cross-border obligations—and assess how these developments affect their business operations.
2. Be Prepared. Maintain robust documentation, including asset reserves, custody arrangements, transaction ledgers, audit reports, and governance protocols. As Korea moves toward strict reserve-backing and bankruptcy-remote custody for stablecoins, comprehensive records will be critical in demonstrating compliance and defending investor or issuer decisions.
3. Be Proactive. Potential targets should develop a strategy that addresses authorities’ questions and helps regulators gain a deeper understanding of their business and the market context. While the long-term effects of the new laws remain uncertain, early engagement, transparency, and clear communication can help mitigate misunderstandings and foster more constructive regulatory interactions.

As South Korea adopts a more assertive digital asset regime, investors and service providers should expect heightened scrutiny. With the Virtual Asset User Protection Act now joined by the Digital Asset Basic Act, regulatory expectations are rising quickly. Those who understand the rules, maintain strong documentation, and engage proactively with authorities will be best positioned to manage risk and operate confidently in this evolving market.