South Korea’s Crypto Regulation Faces Uncertainty After Government Scraps Financial Reform

Seoul's digital asset framework hits regulatory limbo as policymakers abandon comprehensive financial overhaul.

THE FALLOUT

Financial authorities scramble to fill the regulatory vacuum left by the abandoned reform package. Market participants face extended uncertainty as lawmakers debate alternative approaches to crypto oversight.

INDUSTRY REACTION

Local exchanges report increased compliance confusion while international crypto firms reconsider Korean market entry strategies. Trading volumes show slight dip as investors await clarity.

POLITICAL STANDOFF

Opposition lawmakers criticize the government's abrupt policy reversal, calling it 'regulatory whiplash' that undermines Korea's fintech ambitions. The Financial Services Commission maintains that patient deliberation beats hasty regulation.

MARKET IMPLICATIONS

Korean crypto traders adapt to the regulatory gray zone—because nothing says 'financial innovation' like watching bureaucrats rediscover basic market principles for the third time.

‘Mofia’ Reform Postponed Indefinitely

As a result, the current structure of the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) is expected to be maintained. Han Jung-ae, the ruling Democratic Party’s chief policymaker, made the announcement to reporters at the National Assembly on Thursday.

The reform was originally prompted by criticism that the Ministry of Economy and Finance and the financial authorities were too large and powerful. In Korean politics, officials from the Ministry of Economy and Finance are also highly influential.

Hence, they are often referred to as the “Mofia.” This is a portmanteau of the Ministry’s name and the word “mafia.”

President Lee Jae-myung’s campaign pledge to reform the “Mofia” garnered widespread public support. The plan involved various ways to reduce the size of the Ministry of Economy and Finance and the financial authorities.

The government and the ruling party had initially agreed to dismantle the FSC and separate its policy and supervisory functions. The FSC’s financial policy functions were to be transferred to the Ministry of Economy and Finance. Meanwhile, financial supervision WOULD be handled by a new agency dedicated to consumer protection.

A separate Budget and Planning Office was considered to be placed under the Prime Minister’s office within the Ministry of Economy and Finance. Howeverall these plans have now been scrapped.

A Major U-Turn on Crypto Regulation

The sudden reversal has left the South Korean crypto industry feeling bewildered. The industry had been closely watching to see which agency would take on the role of regulating crypto. This was a key question following the restructuring.

There is now concern that the discussion on legalizing a Korean Won-backed stablecoin will be sidelined. Many domestic banks, credit card companies, and fintech firms are already preparing to introduce their own stablecoins.

More than 10 banks, including the five largest commercial banks, have formed a council to collaborate on a joint stablecoin. They are considering issuing it through a joint venture.