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Navigating South Korea’s Mid-2025 Digital Asset Regulatory Landscape: Opportunities for Internet Banking

General Report June 30, 2025
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TABLE OF CONTENTS

  1. Evolution of South Korea’s Digital Asset Regulation
  2. Bank of Korea Policy Shifts: Kimchi Bonds and CBDC
  3. Retail Investor Engagement and Market Sentiment
  4. Leveraging Tokenization and Infrastructure Innovation
  5. Global Regulatory Benchmarks and Strategic Implications
  6. Conclusion

1. Summary

  • As of June 30, 2025, South Korea finds itself at a critical crossroads in the domain of digital finance. With significant regulatory developments unfolding, the Bank of Korea has relaxed the previously stringent restrictions surrounding domestic 'Kimchi Bonds.' This easing, effective June 30, empowers a range of financial institutions, including banks, to autonomously invest in these foreign currency-denominated bonds. Concurrently, while the central bank has paused its Central Bank Digital Currency (CBDC) pilot program, this reflects the ongoing discourse among commercial banks regarding the implications of CBDCs in light of emerging stablecoin frameworks. Notably, the National Assembly is actively advancing legislation aimed at legitimizing won-pegged stablecoins and crypto-backed exchange-traded funds (ETFs), thus signaling a substantial policy shift towards embracing digital assets within the financial mainstream. The momentum gained from President Lee Jae-myung's administration, characterized by the proposed Digital Asset Basic Act, fosters an innovative environment designed to cultivate the issuance of regulated stablecoins, highlighting South Korea’s ambition to position itself as a global player in digital finance.

  • In parallel, retail engagement in cryptocurrency continues to rise, underscoring South Koreans' increasing comfort with digital assets. Recent surveys indicate that 70% of South Koreans plan to augment their crypto holdings, illustrating significant market optimism. This burgeoning consumer interest is not just anecdotal; it corroborates the strategic imperative for financial institutions to adapt and innovate in alignment with evolving investor expectations. Amidst this backdrop of heightened retail engagement, the development of innovative tokenization models and platforms is reshaping investment mechanisms, particularly in sectors like clean energy, which now align profitability with environmental sustainability. South Korea's regulatory evolution is informed significantly by international benchmarks such as Europe’s MiCA framework, which is currently influencing legislative directions and operational strategies within local markets. South Korea's pursuit of creating a structured regulatory environment for digital assets exemplifies a comprehensive response to prevailing global standards, establishing opportunities anew for banks and financial entities eager to participate in the digital age.

2. Evolution of South Korea’s Digital Asset Regulation

  • 2-1. Stablecoin framework acceleration under President Lee Jae-myung

  • Since the inauguration of President Lee Jae-myung on June 4, 2025, South Korea has made significant strides toward defining a stablecoin framework aimed at fostering innovation within its digital asset sector. President Lee's administration has proposed the Digital Asset Basic Act, which seeks to facilitate the issuance of Korean won-pegged stablecoins. This initiative is crucial for establishing a regulated environment that guarantees refunds through asset reserves and ensures that asset-linked digital assets receive approval from the Financial Services Commission (FSC). The proactive steps taken by the ruling Democratic Party reflect a broader strategy to integrate digital assets within the financial system, emphasizing the need for similar frameworks in other major economies. Additionally, the discussions surrounding the stablecoin initiative are furthered by the increasing demand for stable alternatives to U.S. dollar-pegged stablecoins. The government perceives these developments as fortifying the country's position in the evolving global digital finance landscape.

  • 2-2. Proposed ETF bill to include virtual assets

  • On June 27, 2025, South Korea's legislative efforts took a notable turn with the proposal of an amendment to the Capital Markets Act, allowing digital assets to serve as underlying assets for exchange-traded funds (ETFs). This legislative move, championed by lawmaker Min Byung-deok, is part of President Lee's ambition to embed digital assets into South Korea's financial fabric, which had been lacking regulatory clarity in this domain. The amendment outlines conditions for trust companies to hold digital assets as trust property, marking a significant shift in the regulatory landscape.

  • The proposal acknowledges existing concerns around investor protection and risk management, especially since engaging with digital asset derivatives can pose substantial challenges. Advocates for the amendment argue it creates a viable path for asset managers to engage with digital assets domestically, rather than relying on unregulated markets abroad. By introducing a robust legal framework for ETFs linked to virtual assets, South Korea aims to better compete in a global market where many jurisdictions are hastening to establish similar regulations.

  • 2-3. Market hopes for crypto-ETFs and won-based stablecoins

  • As of mid-2025, market sentiments are increasingly optimistic regarding the provision of Korean won-based stablecoins and the introduction of crypto-ETFs. The momentum generated by President Lee's commitments has reignited hopes that these instruments can enhance both market accessibility for retail investors and the overall attractiveness of the domestic financial markets. Moreover, the Bank of Korea has begun to reconsider its stance on stablecoin issuance in non-bank contexts, influenced by rising investor appetite and active trading patterns in digital assets.

  • 2-4. Policy alignment and investor protection measures

  • A significant focus of South Korea's digital asset regulatory evolution is the alignment of new policies with investor protection frameworks. As new bills are introduced, the need for rigorous investor protections becomes paramount to ensure trust in the burgeoning digital asset landscape. The Financial Services Commission has reiterated its commitment to developing comprehensive regulations that encompass financial innovation while safeguarding investor interests. This involves stringent rules on transparency, risk management, and operational frameworks for companies seeking to enter the crypto sector.

3. Bank of Korea Policy Shifts: Kimchi Bonds and CBDC

  • 3-1. June 29 easing of ‘Kimchi Bond’ investment limits

  • On June 29, 2025, the Bank of Korea announced a significant easing of investment restrictions on 'Kimchi Bonds'. This change, which became effective on June 30, allows foreign exchange business institutions—including banks, securities firms, and insurance companies—to invest autonomously in these foreign currency-denominated bonds, which are issued within South Korea. This reform marks a pivotal change in South Korea’s financial landscape and follows a prolonged period of strict regulations that were originally imposed in July 2011 as a precaution against foreign currency loan circumvention. The easing of these rules is part of the Bank’s broader 'Foreign Exchange Supply-Demand Improvement Plan', aimed at resolving imbalances in foreign exchange supply and demand that have pressured the South Korean won.

  • The decision is expected to enhance foreign currency liquidity conditions while mitigating depreciation pressures on the won. Kimchi Bonds serve as a crucial instrument for foreign entities aiming to raise capital in South Korea, and the regulatory change is anticipated to invigorate the domestic bond market. Increased participation from local banks and securities firms in trading dollar bonds is expected. However, it is essential to note that privately placed bonds remain excluded from this easing due to their potential resemblance to foreign currency loans. Observations suggest that the recent surge in foreign investor interest in South Korea is indicative of a growing confidence in the country's economic prospects.

  • 3-2. Suspension of phase 2 CBDC pilot program

  • As of June 30, 2025, the Bank of Korea has officially suspended the second phase of its Central Bank Digital Currency (CBDC) pilot program, previously slated for the latter half of 2025. This suspension reflects increasing pressure from commercial banks concerned about the unclear commercialization roadmap and the substantial costs associated with participation in the pilot. Originally, the pilot aimed to explore various CBDC functionalities but faced resistance from banks that cited high costs and uncertainties regarding regulatory clarity. Banks had invested significant financial resources in the initial phase, but as concerns grew, the banks demanded a long-term roadmap before further commitment.

  • The regional banking sector's shift in strategy mirrors a broader pivot towards stablecoin legalization, prompted by ongoing legislative efforts to establish a framework for Korean won-based stablecoins. This shift suggests a declining priority for CBDCs in the current financial landscape, as banks actively seek to explore stablecoin alternatives instead. Given these developments, the Bank of Korea is reorganizing its internal team overseeing CBDC initiatives, leaving the future of the pilot uncertain and dependent on evolving industry conditions.

  • 3-3. Implications for commercial banks and liquidity management

  • The recent policy shifts regarding Kimchi Bonds and the suspension of the CBDC pilot carry significant implications for commercial banks in South Korea. The easing of restrictions on Kimchi Bonds presents banks with new opportunities to engage more actively in foreign currency bond investments, potentially allowing for increased liquidity management strategies. With Kimchi Bonds now more accessible, banks may diversify their portfolio to better cater to foreign investors, thereby enhancing their service offerings and improving market liquidity.

  • On the other hand, the suspension of the CBDC pilot poses challenges as banks re-evaluate their digital currency strategies amid competing interests in stablecoin developments. The uncertainty surrounding the Bank of Korea's CBDC aspirations may influence banks' investment decisions and operational adjustments, especially regarding technology adoption and digital finance infrastructures. As the landscape evolves, banks will need to balance traditional banking practices with innovative digital strategies to remain competitive and compliant within a rapidly changing regulatory environment.

4. Retail Investor Engagement and Market Sentiment

  • 4-1. Survey: 70% of Koreans plan to increase crypto holdings

  • A recent survey conducted by the Hana Financial Research Institute has revealed that a remarkable 70% of South Koreans express intentions to increase their cryptocurrency holdings over the upcoming year. This sentiment illustrates a burgeoning interest in digital assets among the population, reflecting an established trend in the nation’s financial behavior. Notably, the study, which encompassed 1,000 participants across various demographics, found that 27% of individuals aged 20 to 59 currently own digital assets. This high level of engagement underlines the comfort and familiarity South Koreans have with digital financial products, a behavior rooted in their history of digital consumption. The survey results indicate that interest spans across ages, with the highest concentration of cryptocurrency ownership among individuals in their 40s, at 31%. Furthermore, the data highlights gender disparities, as men are shown to be twice as likely to possess digital assets compared to their female counterparts. Younger respondents tend to favor high-risk trading strategies, while over half of those in their 50s view cryptocurrency investments primarily as a means for retirement planning.

  • 4-2. Role of active retail engagement in shaping regulation

  • Active retail investor engagement is playing a pivotal role in shaping South Korea's regulatory landscape concerning digital assets. Insights from blockchain experts emphasize that the Korean market's robust retail participation provides a unique advantage that could enable the country to become a rule setter in the global digital finance arena. John Park, head of Korea at Arbitrum, articulates that the significant retail scale, with about one-third of adults trading digital assets, enhances the liquidity of Korean exchanges. This active market not only attracts institutional investment but also drives the need for coherent regulatory frameworks that can support innovation. The current proposed legislation for won-based stablecoins and the associated narrative of developing an effective regulatory regime highlight how regulatory bodies are beginning to respond to retail investors' interests. There is a clear acknowledgment that a well-coordinated regulatory approach could bolster retail investor confidence and potentially mitigate risks associated with unstable regulatory environments experienced elsewhere.

  • 4-3. Expert views on Korea as a global digital-finance rule-setter

  • Experts opine that South Korea is on the cusp of becoming a global digital-finance rule-setter, a transformation catalyzed by its active retail investor base and supportive regulatory changes regarding digital assets. John Park notes that the proposed licensing regime for stablecoin issuers, combined with asset segregation requirements, reflects a mature regulatory stance which is likely to enhance Korea's standing in the global digital finance community. This strategic development could attract institutional capital and prompt foreign financial firms to establish operations in Seoul. Additionally, the regulatory landscape is evolving with the potential for innovative financial products that conform to sophisticated standards, thereby positioning Korea as a leader in setting best practices for digital asset management. The concerted efforts to align currency-based stablecoins with Bank of Korea monetary policy and provide clear guidelines support a stable environment that could streamline operations for financial institutions aiming to leverage the growing digital asset market.

5. Leveraging Tokenization and Infrastructure Innovation

  • 5-1. Tokenized clean-energy assets and real-world yields

  • The emergence of tokenized clean-energy assets is reshaping how investments in renewable energy are structured and funded. As of June 30, 2025, platforms such as EcoYield have made significant strides in this area by enabling investors to participate in clean energy projects directly through blockchain technology. Their model ties investments to tangible infrastructure, such as solar power and battery storage systems, ensuring that investors receive real yields based on actual electricity sales rather than speculative token trading. This represents a transformative shift in the investment landscape, where financial returns are aligned with environmental sustainability, fulfilling both investor expectations for profitability and societal goals for clean energy.

  • 5-2. Building multi-asset digital platforms for banks

  • Banks are increasingly recognizing the potential of multi-asset digital platforms as tools for enhancing their service offerings. These platforms allow for the integration of various digital assets, including tokenized securities and cryptocurrencies, providing banks with the flexibility to cater to diverse client needs and preferences. By utilizing advanced infrastructure for digital asset management, banks can streamline compliance processes, enhance security measures, and improve customer experiences. As of mid-2025, the development of these platforms is ongoing, with banks actively exploring partnerships with technology firms to harness blockchain's capabilities in creating robust, scalable, and efficient solutions.

  • 5-3. Best practices for custodian and compliance integration

  • The integration of custodial services and compliance processes within digital asset management systems is paramount for financial institutions looking to capitalize on the growing digital asset market. As of June 30, 2025, best practices emphasize the need for thorough due diligence when selecting custodians capable of managing digital and tokenized assets. Institutions must ensure that custodial solutions incorporate robust security protocols and compliance measures to align with regulations set forth by financial authorities. Additionally, proactive engagement with regulators can facilitate smoother compliance processes and foster a stronger relationship between banks and oversight entities, ultimately paving the way for more robust legal frameworks that support innovation in the digital asset space.

6. Global Regulatory Benchmarks and Strategic Implications

  • 6-1. Europe’s MiCA framework and its EU-wide licenses

  • The Markets in Crypto-Assets (MiCA) framework, which became enforceable in December 2024, represents a significant shift in how digital assets are regulated across the European Union (EU). This regulation standardizes the licensing process for crypto asset service providers, allowing them to operate across all 27 EU member states under a single legal structure. This unified approach eliminates the need for businesses to navigate the cumbersome requirement of obtaining separate licenses in each country, thereby fostering operational efficiency. By granting 'passporting' rights, MiCA facilitates the expansion of companies like Coinbase and Bitvavo, both of which have recently secured MiCA licenses, positioning them as leaders in the digital asset market within Europe. As MiCA continues to shape the European crypto landscape, it underscores the importance of regulatory clarity, which is crucial for fostering innovation while ensuring consumer protection.

  • 6-2. Lessons from Bitvavo and Coinbase MiCA approvals

  • The recent regulatory approvals obtained by leading exchanges such as Bitvavo and Coinbase offer valuable insights into the operational and strategic nuances of complying with MiCA. Both exchanges have positioned themselves to serve a wider European audience through strategic relocations and compliance-focused operational pivots. For instance, Bitvavo, now licensed in the Netherlands, capitalizes on its home country's efficient regulatory environment, while Coinbase has transitioned its European headquarters to Luxembourg, a jurisdiction known for its favorable crypto regulation. These moves not only enhance their operational capabilities but also ensure that they can offer a comprehensive suite of services to millions of potential users while adhering to rigorous consumer protection standards mandated by MiCA.

  • 6-3. Aligning Korean internet banking models with international standards

  • For South Korea, the emergence of the MiCA framework provides a pivotal benchmark for the ongoing development of its own digital asset regulatory landscape. As the National Assembly advances legislation on stablecoins and ETFs, it is critical for Korean internet banking models to align with international standards set forth by frameworks like MiCA. Such alignment not only aids in enhancing the credibility of South Korean digital financial services but also positions them favorably for international partnerships and collaborations. Financial institutions must consider integrating best practices established by MiCA, including robust consumer protection measures and operational transparency, to meet the evolving expectations of both domestic and international stakeholders. By adopting these international benchmarks, South Korea can pave the way for a more resilient and competitive digital asset ecosystem.

Conclusion

  • In summary, South Korea's regulatory landscape for digital assets is undergoing rapid and transformative changes. The Bank of Korea's recent decision to ease regulations on Kimchi Bonds, alongside the strategic pause in its CBDC pilot, showcases a significant recalibration of its approach towards digital finance. These developments, combined with legislative progress on stablecoins and ETFs, create a burgeoning atmosphere ripe with opportunity for both established banks and innovative internet-only financial institutions. As the country embraces these shifts, institutions are urged to take proactive steps to position themselves competitively within this evolving framework.

  • To ensure success in navigating this new digital asset environment, financial entities must focus on obtaining the requisite licenses, such as those pertaining to digital asset trading platforms (DAX), custodial services, and ETFs. Establishing comprehensive compliance frameworks that align with the guidelines of the Financial Services Commission (FSC) will be critical in maintaining investor trust and safeguarding market integrity. Partnerships with seasoned custodians and tokenization platforms will further enhance operational capacity and market offerings, while looking to international benchmarks like MiCA will provide a roadmap for aligning with global best practices. South Korea's trajectory toward becoming a significant player in the global digital finance arena is now within reach, with entities like IBFC and World Making Members positioned to capitalize on this evolving landscape and offer high-yield digital finance products and internet banking services that meet both domestic policy objectives and international regulatory expectations.

Glossary

  • Digital Assets: Refers to any form of asset that is created, stored, and transacted in digital form. Digital assets include cryptocurrencies, stablecoins, and tokenized assets. As of mid-2025, these assets are increasingly integrated into financial systems, regional regulation, and consumer investment strategies.
  • Kimchi Bonds: These are foreign currency-denominated bonds issued in South Korea, primarily aimed at attracting foreign investment. As of June 30, 2025, the Bank of Korea has relaxed regulations allowing banks to invest in these bonds independently, which is expected to enhance liquidity in the domestic bond market.
  • CBDC (Central Bank Digital Currency): Digital currencies issued by central banks that represent a digital form of a country's fiat currency. As of June 30, 2025, the Bank of Korea has paused its CBDC pilot program amidst discussions on its implications for the banking sector and ongoing regulatory clarity.
  • Stablecoin: A type of cryptocurrency designed to maintain a stable value by pegging it to a reserve of assets, such as fiat currency. The South Korean government is currently advancing legislation to legalize won-pegged stablecoins, facilitating their integration into the financial ecosystem to enhance accessibility for retail investors.
  • ETF (Exchange-Traded Fund): A marketable security that tracks an index, a commodity, or a basket of assets like a mutual fund, but trades like a stock on an exchange. A proposed amendment in South Korea's Capital Markets Act seeks to allow digital assets as underlying assets for ETFs, a significant move for the incorporation of digital financial products.
  • Bank of Korea: The central bank of South Korea responsible for setting monetary policies and overseeing the stability of the financial system. As of June 30, 2025, the Bank has introduced reforms in its approaches towards foreign investments and is exploring the role of digital currencies with adjustments to its CBDC initiatives.
  • Regulation: A set of rules established by governing bodies to manage the conduct of entities in the financial sector. The evolving regulations surrounding digital assets in South Korea aim to align local practices with global standards, particularly influenced by frameworks like Europe’s MiCA.
  • Tokenization: The process of converting rights to an asset into a digital token on a blockchain. This process is gaining traction in South Korea, especially in environmental sectors where investments are being tied directly to sustainable projects, ensuring profitability while addressing sustainability goals.
  • Retail Investors: Individual investors who buy and sell securities for their personal account, rather than on behalf of an organization. The surge in retail engagement with cryptocurrencies in South Korea is influencing regulatory frameworks and encouraging the development of financial products tailored for this demographic.
  • MiCA (Markets in Crypto-Assets): A regulatory framework implemented in the European Union to standardize the licensing of crypto asset service providers across member states. Enforced from December 2024, MiCA is serving as a benchmark for South Korea's efforts to establish a cohesive regulatory landscape for digital assets.

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