South Korea’s National Assembly passed a sweeping amendment to the Act on Reporting and Using Specified Financial Transaction Information on Thursday, granting the Financial Intelligence Unit (FIU) unprecedented power to veto crypto operator licenses based on the criminal records of their major shareholders.
The legislation, confirmed by the Financial Services Commission (FSC), closes a critical regulatory loophole. Previously, only C-suite executives were subject to background checks. Under the new regime taking effect in August 2026, the "real owners", major shareholders of Virtual Asset Service Providers (VASPs), face immediate disqualification if they hold records for financial crimes, tax evasion, or even drug trafficking.
The ‘Clean Hands’ Doctrine
The amendment transforms the licensing landscape for the "Big Five" exchanges (Upbit, Bithumb, Coinone, Korbit, GOPAX). The FIU now wields the authority to evaluate an operator’s "social credit" and financial stability, not just their technical compliance.
Key provisions include:
- Expanded Screening: Major shareholders are now vetted for violations of the Fair Trade Act, Punishment of Tax Evaders Act, and Narcotics Control Act.
- Conditional Licensing: The FIU can issue provisional licenses with specific operational mandates, effectively placing high-risk exchanges on probation.
- Retroactive Pressure: While the law formally starts in six months, regulators are expected to apply these standards during ongoing renewal reviews.
"The move is aimed at blocking poor or ineligible businesses from entering the market," the FSC stated, signaling an end to the era of opaque ownership structures in Korean crypto.
Context: The Upbit Catalyst
This legislative tightening follows a rigorous FIU probe into Dunamu, the operator of market leader Upbit. During a recent license renewal review, authorities flagged approximately 500,000 to 600,000 potential KYC violations, exposing systemic gaps in user verification.
The incident forced regulators to acknowledge that operational failures often stem from governance issues at the shareholder level. By targeting the cap table, the FSC is forcing exchanges to audit their own investors or risk losing their operating permits.
Market reaction was muted but cautious. The "Kimchi Premium", the price gap between South Korean and global exchanges, remained stable, suggesting traders view the cleanup as a long-term institutional ramp rather than an immediate liquidity threat.
