South Korea’s ambition to expand its cryptocurrency services has encountered a severe stagnation, with regulatory bottlenecks leading to a marked decline in the approval of new Virtual Asset Service Providers (VASPs). After a promising trajectory, the nation’s crypto sector now finds itself in a holding pattern as trading and custody firms face prolonged waiting periods, causing unease among investors and startups monitoring the landscape closely.
South Korea: Approvals Drop Sharply
Recent reports indicate that the Financial Intelligence Unit (FIU) has only sanctioned two new VASPs in 2025: Happy Block, recognized for its exchange services, and Blosafe, which provides transfer and custody options. Approval timelines have also found themselves extended, with the average duration skyrocketing from 11 months in 2024 to approximately 16 months this year. Alarmingly, some applicants have been left in limbo for over 600 days, casting a shadow over the sector’s growth potential.
Inspections and Penalties Increase
In an effort to tighten oversight, regulators have heightened scrutiny on current operators. Dunamu, the parent company of the prominent exchange Upbit, recently faced a hefty fine of 35.2 billion won due to flagged anti-money laundering violations. Other established entities, including Korbit, Bithumb, Coinone, and Gopax, have similarly faced sanctions or warnings in recent months. This heightened vigilance is backed by alarming reports of suspicious transaction filings accumulating to around 9.56 trillion won since 2021, prompting regulators to adopt a stricter stance.
Even ventures in collaboration with financial institutions are feeling the squeeze. Bit Korea’s anticipated partnership with Hana Bank remains stalled as it awaits crucial regulatory clearance, which delays the launch of several services that could have diversified options for ordinary users.
Lawmakers are embroiled in discussions regarding a comprehensive Digital Asset Basic Act, intended to establish clearer guidelines for stablecoins, custody operations, and market conduct. Unfortunately, the enactment of this vital legislation has been postponed until 2026, leaving critical questions unanswered and firms grappling with navigating a complex landscape. In tandem, the expansion of travel rule requirements and stricter identity verification measures are increasing compliance costs and paperwork burdens for firms seeking approval.
Market Effects and Business Choices
The sharp decline in new VASP approvals and the glacial pace of regulatory processes are compelling entrepreneurs to explore opportunities beyond Korea’s borders, where onboarding might be more efficient and regulations less cumbersome. Many existing platforms seem to be stalling new product launches as they grapple with stringent compliance measures. Reports suggest that potential market entrants are either delaying or completely withdrawing their plans, overwhelmed by the uncertain timeline and increased operational costs.
While industry advocates contend that heightened oversight will mitigate illicit activities and enhance consumer protection, regulators emphasize their commitment to creating safer markets. Both perspectives are crucial to consider as the market navigates these tumultuous waters. With just two approvals in 2025 and critical legislation deferred until 2026, the future trajectory of innovation in South Korea’s cryptocurrency landscape will hinge on the swift clarification of regulatory frameworks and the capacity of firms to adapt to the escalating compliance demands.
Featured image from Unsplash
