South Korea's encryption policy faces a turning point: differences exist among regulatory agencies

South Korea is undergoing a profound transformation in its cryptocurrency policy, oscillating between the two forces of "caution" and "openness." This deep-seated contradiction is not only reflected in the different signals released by the highest financial regulatory body, the Financial Services Commission ( FSC ), and the enforcement agency, the Financial Supervisory Service ( FSS ), but also highlights the repeated weighing of digital asset positioning by policymakers.

Recently, the FSS issued informal verbal directives to several local asset management companies, requiring them to reduce their risk exposure to US-listed digital asset companies. This warning strictly referenced South Korea's 2017 policy prohibiting financial institutions from directly holding or purchasing equity in digital asset companies. The FSS emphasized that, prior to formal regulatory updates, the current rules remain binding even if domestic and international regulatory environments change. This move has raised market concerns as it stands in stark contrast to the recent open signals released by the FSC.

This kind of "policy friction" is a typical feature of the regulatory transition period. When the reform blueprint has not yet been fully implemented, the inertia of old regulations still exists. Regulators, on one hand, try to convey an open attitude of "what can be done," while on the other hand, they leave a way out for potential risks through verbal warnings, essentially seeking a subtle balance between practical considerations and ideal visions.

Previously, the FSC announced that it would gradually lift the institutional encryption trading ban implemented in 2017. The regulator stated that the initial ban aimed to curb speculation and illegal activities, but the current market dynamics, along with the surge in local enterprises' demand for participation in blockchain and the improvement of key infrastructure, have prompted a policy shift.

The FSC's move is not merely a simple follow-up to international trends, but rather based on a comprehensive assessment of market maturity and risk control capabilities. With the implementation of relevant laws, South Korea has initially constructed a relatively complete compliance framework covering exchange licenses, client due diligence, and asset custody. The FSC believes that continuing to strictly limit institutional participation will instead suppress local capital and technology from embracing the wave of blockchain finance, missing development opportunities.

The new framework will be implemented in stages in 2025: in the first half of the year, specific institutions will be allowed to sell encryption assets; in the second half, listed companies and professional investors will be able to trade, promoting South Korea's regulation to align with international standards. The FSC pointed out that this reform follows global trends.

The divergence in statements between the FSS and FSC exposes the fundamental cognitive differences regarding the nature of digital assets deep within the South Korean financial regulatory system. The FSC views Bitcoin and its derivatives more as "programmable value carriers," emphasizing their potential in cross-border payments, corporate finance management, and financial innovation; whereas the FSS still places them under the negative framework of "speculation and bubbles," worrying that regulatory arbitrage and excessive leverage could exacerbate market volatility and distort liquidity, especially when domestic institutions engage heavily.

This contradiction is not unique to South Korea. In 2024, several countries and regions have issued relevant licenses to traditional financial giants, promoting the tokenization of money market funds and Bitcoin strategies. In contrast, South Korea's pace appears cautious and hesitant, as if one foot is "chasing opportunities" while the other is "alert to risks," trying to move in parallel through the fog, but inevitably falling out of step.

The split in regulatory signals has had direct consequences: medium- to long-term funds are adopting a cautious wait-and-see approach. Asset management companies prefer to keep their positions in overseas encryption stocks and ETFs within the regulatory gray area rather than recklessly stepping into the unclear domestic market; domestic exchanges, while vying for licenses and expanding institutional business, must cope with constantly updated compliance requirements, increasing costs and uncertainties.

However, from a macro perspective, this growing pain may be a necessary stage for the natural maturation of policies. A radical one-size-fits-all approach might provoke speculative frenzy and regulatory loopholes; whereas an overly conservative stance could cause the country to lag behind in the global digital economy. The key lies in whether South Korea can, in the coming months: revise the specific quantitative rules for financial institutions' holdings, clarify the mechanisms for cross-border capital flows and foreign exchange risk hedging, and integrate the FSC's intentions for openness with the FSS's prudent demands into a unified regulation.

What is worth looking forward to is how the stable entry of institutional-level capital will reshape the local encryption ecosystem. Regulators are not simply "applying the brakes" or "accelerating", but are trying to create a "buffer zone that balances safety and efficiency": guiding compliant funds to gradually integrate into the global digital asset network while ensuring market stability. This path is fraught with challenges, but once successful, South Korea is expected to become the next digital asset center in Asia, combining financial innovation vitality with strict compliance advantages.

Overall, South Korea's current encryption policy is a complex process of multi-center, step-by-step evolution, which includes adherence to the security boundaries of traditional finance, as well as a keen anticipation for the future of financial technology. The core question moving forward is how to achieve precise alignment between the policy rhythm, legislative progress, and market practices of the FSC and FSS. Only when regulation and innovation achieve deep synergy can South Korea truly move beyond the "cautious trial" stage and actively embrace the next era of digital asset development.