South Korea is loosening its restriction on institutional trading, as the nation's financial regulator, the Financial Services Commission (FSC) plans to gradually grant institutions access to local crypto exchanges, starting with non-profit organisations.

For years, the country has limited institutional trading even though no official ban exists. Currently, only retail traders with verified accounts are allowed to trade, essentially blocking institutional traders.

So this move marks a major policy shift as the government looks to support the nation's crypto sector.

South Korea's crackdown on crypto regulations

As part of the initiative, the FSC aims to collaborate closely with the Digital Asset Committee, a policy advisory body under its jurisdiction. The phased rollout will reportedly start with non-profit organizations before extending to other institutional investors.

The initiative builds on the Virtual Asset User Protection Act, enacted last year to improve investors safeguards and croack down on unfair trading practices.

The law introduced strict measures such as requiring exchanges to store user funds in financial institutions, maintaining cold wallets. Reserves, and obtaining insurance against potential losses.

The second phase of the regulation would cover new regulations for stablecoins, crypto exchanges, and token listings. This would include how to create listing standards, what to do with stablecoins, and how to create rules for conduct for virtual asset exchanges.

The FSC is also preparing to introduce a system to review the eligibility of major shareholders in virtual asset companies through revisions to the Special Financial Transactions Act.

Through tightening screening criteria for speculative assets like memecoins, FSC hopes to sift out money launderers and improve finance transparency. The agency also intends to introduce forensic tools to investigate and combat unlawful trading behaviours, ensuring a safer environment for users.

This policy shift aligns with one of President Yoon Suk-yeol’s key campaign promises to bolster South Korea’s cryptocurrency sector. The administration, alongside the ruling People Power Party, has also advocated for the introduction of spot crypto exchange-traded funds (ETFs), which remain unavailable in the country.

Working against the current political turmoil

But despite all its lofty plans, South Korea would have a hard time considering how it would have to work against the current given the current political turmoil the country is facing.

In December 2024, the now-impeached President Yoon Suk Yeol declared marital law amidst mounting tensions, putting all legislative priorities to a standstill.

The sidelined legislation included much-anticipated legalisation of securities token offerings (STOs) and the introduction of real-name corporate accounts.