The bitcoin markets appeared to take the news in stride.
South Korean Financial Services Commission Vice Chair Kim Yong-beom told reporters that starting next week, local banks will launch a real-name system for trading of cryptocurrencies to help curb speculation and criminal activities.
That means banks will have to ensure any cryptocurrency investment comes from a bank account owned by the same individual. The measure will prevent such trading by foreigners living outside South Korea who do not have local bank accounts. It also will ban minors younger than 19 from buying or selling bitcoins and other digital currencies.
Once the new system is in place, existing anonymous accounts used for crypto trading will be canceled, he said.
Where does Bitcoin go from here?
The moves follow warnings by South Korean authorities that they might ban anonymous trading in cryptocurrencies and crack down on speculative trading. Regulators are seeking to prevent use of crypto currency trading for money laundering, tax evasion and other crimes.
The new requirements could also lead to a shutdown of some cryptocurrency exchanges. Banks will be able to refuse to open accounts with any exchanges that refuse to disclose information about suspicious trading.
"We expect that cryptocurrency exchanges that are in danger of being exploited for money laundering will be thrown out of the market," Kim told reporters.
The government is also asking financial institutions to step up their oversight of the virtual currency sector. Lenders were told to closely monitor crypto trading that exceeds 10 million won ($9,338) a day or 20 million won ($18,676) per week, and also crypto trading accounts owned by corporations or groups and report any suspicious activity to the authorities.
Kim said the government does not intend to encourage trading in cryptocurrencies.
South Korea is home to some of the world's largest cryptocurrency exchanges, and a craze for bitcoin and other cryptocurrencies has swept the country.
Suggestions by top government officials that a ban on such trading was under consideration prompted supporters of cryptocurrency investing to petition the presidential office's website to block such a move.
The price of bitcoin gyrated wildly earlier this month, soaring and then sinking on concerns over now South Korea and other governments might handle the boom in cryptocurrency trading. Its price has fallen more than 40 percent from its peak earlier this month.