South Korea revises debt relief rules to include crypto assets

South Korea has expanded cryptocurrency disclosure requirements for its public debt relief program by including virtual asset holdings in applicant asset reviews and linking debt forgiveness more closely to repayment capacity.

According to local media, the Financial Services Commission said after a June 25 review meeting with the Korea Asset Management Corporation (KAMCO) that it would revise the New Start Fund, a debt restructuring program for small business owners and self employed borrowers, to strengthen property assessments, debt adjustment standards, and post approval monitoring.

Authorities will now examine investment assets such as cryptocurrencies and unlisted shares that were previously difficult to verify through financial statements and government administrative records. The commission said the changes aim to distribute public support more efficiently and prevent unnecessary spending.

Applicants identified as users of South Korea’s five major won based cryptocurrency exchanges have been required to submit virtual asset balance certificates since January after the government reached agreements with the exchanges. KAMCO uses the documents during property assessments to determine eligibility for debt relief.

Officials also began requiring applicants to disclose holdings of unlisted shares in May. Shares in privately held companies operated directly by the applicant remain excluded from property reviews because authorities considered the need to preserve business income.

Debt relief tied to repayment capacity

The Financial Services Commission said debt forgiveness under the New Start Fund will depend more closely on each applicant’s repayment ability.

Current rules allow principal reductions of 60% to 80% for unsecured debt that has remained delinquent for more than 90 days, with low-income and vulnerable borrowers eligible for reductions of up to 90%. The commission said the existing minimum reduction left limited room to distinguish borrowers with stronger repayment capacity.

Borrowers whose repayment capacity exceeds 100% will now face a minimum principal reduction of 30% instead of 60%. Authorities will lower debt relief by between 5 and 30 percentage points, depending on repayment ability.

Amendments to South Korea’s Credit Information Act, which take effect on Aug. 13, will allow government debt restructuring agencies to obtain property information in bulk. The Financial Services Commission said authorities will receive cryptocurrency and unlisted share data regularly from relevant institutions to verify applicants’ asset declarations after debt restructuring approvals.

South Korea has introduced several digital asset policy measures this month beyond the New Start Fund revisions. 

The Financial Services Commission recently proposed expanding its regulatory sandbox to cover digital asset laws, while the government has also approved a licensing framework for cross-border virtual asset transfers that will take effect in December. 

Authorities have introduced these measures as digital asset activity continues to grow across South Korea’s financial sector. As previously reported by crypto.news, cryptocurrency-based overseas remittances increased 380% over the past three years as banks and fintech firms have continued to develop blockchain-based payment infrastructure.