Author: BlockWeeks

South Korea's crypto policy is undergoing a slow evolution, with the core being torn between the two forces of "caution" and "openness". This deep-seated contradiction is not only reflected in the conflicting signals released by the highest financial regulator, the Financial Services Commission (FSC), and the executive department, the Financial Supervisory Service (FSS), but also reflects the repeated consideration of the positioning of digital assets at the policy-making level.

Asset management institutions received verbal warnings: policy frictions are beginning to emerge

According to the Korea Herald, the FSS recently issued informal verbal instructions to several local asset management companies, asking them to reduce their risk exposure to US-listed digital asset companies such as Coinbase (COIN) and MicroStrategy (MSTR). The warning strictly cited South Korea's 2017 policy prohibiting financial institutions from directly holding or purchasing shares in digital asset companies.

FSS stressed that before the formal regulations are updated, the current rules will remain binding even if the domestic and international regulatory environment changes. This move has caused confusion in the market because it is in sharp contrast to the open signals recently released by FSC. This "policy friction" is a typical feature of the regulatory transition period - when the reform blueprint has not yet been fully implemented, the inertia of the implementation of the old rules still exists. On the one hand, the regulators try to convey an open attitude of "can do", and on the other hand, they reserve a retreat for potential risks through verbal warnings. The essence is to seek a delicate balance between realistic considerations and ideal visions .

The ban on institutional trading will be lifted in stages: proactive change under the risk control framework

A few weeks ago, the FSC announced that it would reverse the ban on institutional crypto trading implemented in 2017. The regulator said that the ban was originally intended to curb speculation and illegal activities, but the current market dynamics and the surge in demand for local companies to participate in blockchain, coupled with the improvement of key infrastructure , prompted a policy shift.

It is worth noting that the FSC's move is not simply to follow the international trend , but is based on a comprehensive judgment of market maturity and risk control capabilities. With the implementation of the "Virtual Asset User Protection Act", South Korea has initially established a relatively complete compliance framework covering exchange licenses, customer due diligence, and asset custody. The FSC believes that continuing to strictly restrict institutional participation will inhibit local capital and technology from embracing the blockchain financial wave and miss development opportunities .

The new framework will be implemented in stages in 2025: in the first half of the year, charities, education and law enforcement agencies will be allowed to sell crypto assets; in the second half of the year, listed companies and professional investors will be allowed to trade, pushing South Korea's regulation into line with international standards. The FSC pointed out that "major overseas countries generally allow companies to participate in the market" and the reform is in line with the trend.

Policy Crossroads: Cognitive Gap and Global Race

The divergence of the FSS and FSC’s statements exposed the fundamental differences in the understanding of the nature of digital assets in the depths of the Korean financial regulatory system. The FSC sees Bitcoin and its derivatives as “ programmable value carriers ” and values their potential in cross-border payments, corporate treasury management, and financial innovation; while the FSS still places it under the negative framework of “ speculation and bubbles ”, worrying that regulatory arbitrage and excessive leverage will exacerbate market volatility and distort liquidity, especially when local institutions intervene heavily.

This contradiction is not unique to South Korea . In 2024, the Dubai International Financial Center (DIFC) has issued licenses to traditional giants such as BNY Mellon and Goldman Sachs to promote the tokenization of money market funds and Bitcoin strategies; Canada, Switzerland, Singapore and other places have also incorporated institutional entry mechanisms into a clear compliance framework. In contrast, South Korea's pace appears cautious and hesitant - as if a left foot "chasing opportunities" and a right foot "watching risks" are trying to move in parallel in the fog, but inevitably out of step.

The pain of "two feet in different ways" and the vision of a buffer zone

The split in regulatory signals has had direct consequences: medium- and long-term funds have fallen into a cautious wait-and-see attitude . Asset management companies would rather maintain their overseas crypto stocks and ETF positions in the regulatory gray area than rashly step into the uncertain local market; local exchanges have to deal with the FSS's constantly updated compliance "soft red lines" when striving for licenses and expanding institutional business, which only increases costs and uncertainties.

However, from a more macro perspective, this pain may be a necessary stage for the natural maturity of the policy . Radical one-size-fits-all liberalization may induce speculative frenzy and regulatory loopholes; while blindly conservative will make the country fall behind in the global digital economy. The key lies in whether South Korea can revise the specific quantitative rules for financial institutions' positions, clarify the cross-border capital flow and foreign exchange risk hedging mechanism , and integrate the FSC's open intentions and the FSS's prudent demands into a unified regulation in the coming months . Only in this way can the "two-step parallel" be transformed into "walking side by side."

What is most worth looking forward to is how the stable access of institutional capital will reshape the local crypto ecosystem . Regulators are not simply "stepping on the brakes" or "stepping on the accelerator", but are trying to create a buffer zone that "balances safety and efficiency" : on the premise of ensuring market stability, guide compliant funds to gradually integrate into the global digital asset network. Although this road is full of challenges, once it is successful, South Korea is expected to become the next digital asset center in Asia that combines financial innovation vitality and strict compliance advantages after Singapore and Hong Kong.

Complex signals of multi-center evolution

Ultimately, South Korea's current encryption policy cannot be simply defined by a single "release" or "warning". It is a complex process with multiple centers and step-by-step evolution , which includes both the adherence to the traditional financial security boundaries and the eager anticipation for the future of financial technology. The next core proposition is how to accurately align the policy rhythm, legislative progress and market practice of the FSC and FSS . Only when supervision and innovation achieve deep synergy can South Korea truly transcend the "cautious trial" stage and actively embrace the next era of development of digital assets.

(Note: FSC stands for Financial Services Commission, the highest financial regulatory agency in South Korea; FSS stands for Financial Supervisory Service, the financial executive department directly under FSC)