After an almost nine-year ban on crypto investments, South Korea’s officials are reportedly preparing to review the legislation so that local registered firms may use up to 5% of their equity capital to buy digital assets and diversify their portfolios.
According to a Sunday report by the local news outlet Seoul Economic Daily, South Korean regulatory body, the Financial Services Commission, has updated its guidelines for corporate crypto investments.
If, for the last nine years, such an asset allocation was completely off limits, today the country’s authorities consider enabling local firms to diversify their portfolios with virtual assets. However, the strict limits would apply. To begin with, companies in South Korea would be able to spend not more than 5% of their capital on crypto purchases. Furthermore, the firms could reportedly invest only in major cryptocurrencies, which are among the top 20 largest digital assets by market cap at present. The enterprise-grade trading should be facilitated exclusively by Korea’s five largest regulated exchanges.
So far, the discussions about including dollar-pegged stablecoins in the list of approved investments are still ongoing. The government is also currently estimating potential mechanisms to reduce risks from the expansion of liquidity in local crypto markets.
Right from the start, South Korean regulators were worried that allowing companies and institutions to invest in cryptocurrencies would fuel speculative trading and contribute to volatile price swings that could destabilize the broader financial system. Therefore, addressing these concerns with thorough precautions is the only way to move forward with more crypto-friendly policies.
At the same time, reassessing the outright ban in favour of prudent limitations is a process aimed at luring some capital back into the country. The 2017 crypto investment ban forced a lot of Korean capital offshore. During these nine years, hundreds of billions of dollars in crypto flows shifted to foreign exchanges and crypto markets where institutional products were available.
Besides, today, with legal infrastructure significantly improved compared to the 2017 state of financial laws (e.g., the Virtual Asset User Protection Act and enhanced AML/KYC systems), South Korean regulators feel more confident that institutional market participation can occur without excessive risk.
The local authorities have been easing the crypto restrictions while simultaneously implementing stronger controls gradually for a few years now. Thus, late last year, the South Korea’s government obliged businesses engaged in cross-border virtual asset trade to register with authorities in advance and submit monthly transaction reports to the Bank of Korea.
