Digital Asset Act

A domestic legislative framework for establishing order in the virtual asset market and protecting users; following the enforcement of the User Protection Act in 2024, discussions on a second-stage fr

Digital Asset Act

Overview

Digital Asset Act is a collective term for the body of South Korean legislation intended to govern the entire process of issuing, trading, custodying, and distributing virtual assets (digital assets) such as Bitcoin and Ethereum. The Act on the Protection of Virtual Asset Users, etc. (hereinafter the User Protection Act), enacted in July 2023 and enforced on July 19, 2024, has taken its place as the first-stage legislation, while the second-stage Digital Asset Framework Act, which would regulate the overall market structure, is under discussion in the National Assembly. Its core objectives are protecting user assets, regulating unfair trading, securing market soundness, and bringing new asset types such as tokenized securities and stablecoins into the institutional system.

Key Details

Stage 1: Act on the Protection of Virtual Asset Users, etc.

The User Protection Act is the first comprehensive legislation to set out the duties and penalties of virtual asset service providers. Its main points are as follows.

Protection of user deposits: Virtual asset service providers must deposit users' deposits separately at banks, etc., and must store a certain proportion or more of virtual assets in cold wallets.
Prohibition of unfair trading: Market manipulation, fraudulent trading, and the use of material information are prohibited, and violations may be punished by imprisonment with labor for at least one year or a fine of at least three times and up to five times the unjust gains.
Supervisory system: The Financial Services Commission and the Financial Supervisory Service exercise supervisory authority, and a joint regulatory system for virtual asset exchanges modeled on the Korea Exchange also operates in a supporting role.
Prevention of conflicts of interest: Internal control duties are imposed, such as restrictions on service providers' proprietary trading and the installation of information barriers.

Stage 2: Discussions on the Digital Asset Framework Act

Whereas the first-stage legislation focused on user protection centered on exchanges, the second-stage framework act aims to regulate the overall market infrastructure. The main issues are as follows.

Regulation of issuance and listing: Mandatory public disclosure for the issuance of virtual assets, listing review standards, and disclosure of white papers.
Licensing system for service providers: Introduction of a licensing or registration system by function, such as exchanges, custody services, and wallet services.
Tokenized securities (STO) and stablecoins: Establishing the relationship with the Capital Markets Act, regulation of issuers' reserves, and whether interest payments are permitted.
Real-name verified accounts and anti-money laundering (AML): Strengthening linkage with the Act on Reporting and Using Specified Financial Transaction Information (Special Financial Information Act).

Regulatory Authorities and Institutional Infrastructure

The Financial Services Commission is in charge of overall policy, while the Financial Supervisory Service handles inspection and supervision. The Bank of Korea participates in discussions on stability related to stablecoins and payment settlement, while the Ministry of Justice and the Ministry of Science and ICT are involved in money laundering regulation and blockchain technology promotion, respectively. In addition, the Virtual Asset Committee (a public-private consultative body) performs deliberative and advisory functions.

Latest Trends

During the first year after the User Protection Act took effect in July 2024, exchanges were required to maintain cold wallet storage ratios, pay interest on deposits, and establish systems for the constant monitoring of abnormal transactions. In 2025, the following changes stand out.

Acceleration of second-stage legislation: The government and ruling and opposition parties are jointly proposing bills for the enactment of the Digital Asset Framework Act, and coordination of differences over provisions on tokenized securities and stablecoins is underway.
Discussions on stablecoin regulation: Financial authorities and the industry are at odds over whether to restrict issuers of won-denominated stablecoins to banks, etc., or to open issuance to fintech companies.
Spot ETFs and incorporation into the institutional system: Discussions continue on whether to introduce Bitcoin and Ethereum spot ETFs domestically, and the phased granting of real-name accounts at exchanges for corporate accounts is being pursued.
International consistency: Coordination work is being carried out in parallel to align with international regulations such as the FATF recommendations and MiCA (the European Union's Markets in Crypto-Assets Regulation).
Actual application of supervisory sanctions: As the first sanction cases involving market manipulation and the use of undisclosed information have emerged, the effectiveness of law enforcement has been put to the test.