South Korea has already introduced the first global regulatory framework on artificial-intelligence in the world, outpacing the European Union in its desire to dominate the space of global AI services.
The startup ecosystem has however expressed serious complaints on the aspect of the classification and compliance requirements of high-impact AI systems; most founders claim that it is too wide-ranging and technically vague, and which most of them feel may cripple their competitive edge.
Key Rules Unveiled
The AI Basic Act, which will come into force on 22nd January 2026, requires human control over the high-impact AI systems used in the most critical fields, nuclear safety, healthcare, transport, water production, and even financial services, including loan-screening.
Products generated using generative-AI must be labeled as such initially, and the outputs that recreate real-world appearance, such high-impact AI systems for example deepfakes, incredibly realistic synthetic media of actual people or conditions must be annotated by the firm intelligibly.
Penalties are up to 30 million won (about $ 20,400 US) which is much less than the maximum in the European Union (7% of global turnover). This is an indication of the policy decision by South Korea to focus more on early adoption and incentives to innovate instead of punishment to emerging firms and smaller businesses.
A grace period of one year has been ensured, where the companies can take time to prepare with the help of arms of assistance within the advisory platforms as well as special assistance centers.
Booming Market at Stake
The domestic AI market in South Korea was estimated to reach $3.9 billion of valuation in 2025 and further projected to grow to $32.4 billion by 2034 with the compounded annual growth rate approximated at 26.33%.
This growth can be attributed to the use of 5G technologies, the spread of smart factories, According to the United Nations Development Programme, the global AI market could reach $4.8 trillion by 2033, making it one of the defining frontier technologies of the coming decade.
Industry Pushback Grows
President Lee Jae Myung was sympathetic to such concerns. He urged policymakers to listen to the concerns of industry and ensure that venture companies and startups have enough support.
Lee said during a meeting with aides.
It is essential to maximise the industry’s potential through institutional support, while pre-emptively managing anticipated side effects
During the grace period, the Ministry of Science and ICT intends to establish a guidance platform and a dedicated support center for companies.
Additionally, we will continue to review measures to reduce the burden on industry
A spokesperson stated, adding that authorities were considering extending the grace period if domestic and international industry conditions warranted it.
Path Forward
Analysts argue that one way to pursue a middle way on innovation is to give more time to implement the changes in the universal regulatory environment subject to substantial uncertainty, which is the opposite of the United States approach to innovation, which is minimalistic, and that of China, which remains coordinated.
South Korea has the financial capability to speed up its path (in terms of finance), as it has a dedicated budget for 2026 as 727.9 trillion won ($495.8 billion), with President Lee Jae Myung more than tripling AI investment to 10.1 trillion won ($6.9 billion).
Nonetheless, startups would need a clear direction on how to achieve the forecasted growth, without being hampered by the lack of compliance requirements. The victory will depend on quick perfection of the regulatory provisions, making the oversight a stimulating factor to fast growth.
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