Study Urges South Korea to Classify DeFi, OTC Providers as Unlicensed Digital-Asset Operators and Restrict Access

A policy study commissioned by South Korean financial authorities recommended classifying decentralized finance, or DeFi, and over-the-counter, or OTC, support providers as unlicensed digital-asset businesses and restricting access and trading by domestic users.

Digital Asset reported on October 2 that the Korea Institute of Finance made the recommendation in a report submitted to the Financial Services Commission titled "Second-Stage Legislation and Anti-Money Laundering Framework Enhancements for Stablecoins."

The institute said it would be preferable not to explicitly designate DeFi and OTC support providers as direct regulatory targets. Instead, authorities should broadly interpret virtual-asset business activities subject to anti-money laundering and counter-terrorism financing rules and impose related obligations, it said.

Most DeFi and OTC support providers fall into areas where regulatory jurisdiction is unclear, and it is difficult for any one country to exercise supervisory authority over them, the institute said. It recommended classifying them as unlicensed virtual-asset businesses and actively using measures such as restricting access by South Korean users and limiting transactions by local operators.

The institute also proposed establishing standards for determining whether offshore operators are unregistered. It said authorities should draw up guidelines so domestic users and businesses can determine whether a provider is operating without filing a report, and make clear that offshore operators serving South Korean users are subject to domestic reporting requirements.

The report also addressed the need to regulate stablecoin transactions conducted through personal wallets. The institute said existing anti-money laundering and counter-terrorism financing frameworks are difficult to apply to cold wallets and peer-to-peer wallet transactions, and recommended a medium- to long-term review of whether to impose reporting or registration requirements on platform and software providers that support wallet-to-wallet stablecoin transfers.