South Korea softens proposed crypto reporting rules after industry pushback
South Korean authorities have eased parts of a proposed Anti-Money Laundering (AML) overhaul for crypto, dialing back an earlier plan that would have forced blanket reporting of large overseas crypto transfers.
What changed
- The Financial Intelligence Unit (FIU) of the Financial Services Commission has moved away from a strict, threshold-only rule that would have required domestic crypto operators to automatically flag all transfers above 10 million won (about $6,400) as suspicious whenever they involved overseas platforms or private wallets.
- Instead of automatic reports based solely on that threshold, the FIU will require each virtual asset business to maintain its own AML risk management system and conduct qualitative risk assessments. “If we use only the threshold of 10 million won as the reporting criterion, companies would report uniformly without assessing risk; therefore, we will require each company to operate its own management system so that they can conduct qualitative assessments of risky transactions,” an FIU official said.
Why regulators changed course
- The decision followed meetings between regulators and crypto exchange representatives this week, after strong industry opposition to the March draft amendments to the Specific Financial Information Act (SFIA) — South Korea’s core legal framework for digital assets and AML.
- The Digital Asset Exchange Joint Council (DAXA), representing 27 virtual asset service providers (VASPs), warned the threshold-only approach would be unworkable in practice. DAXA estimated suspicious transaction reports from the country’s five largest exchanges could swell from about 63,408 cases last year to 5,445,133 under the original proposal — a surge that would overwhelm compliance operations.
Other revisions and what stays
- Enhanced customer due diligence (CDD) provisions have also been relaxed. Where the original draft called for enhanced CDD — including source-of-funds and purpose verification — for transactions labeled as high-risk or suspicious, the revised approach narrows that requirement to transactions classified as particularly high-risk.
- Regulators will allow a one-year grace period for the debt-to-equity ratio requirement included in virtual asset business registration rules, easing pressure on smaller operators that might struggle to meet a 200% threshold.
- One element that will remain unchanged: the planned expansion of the travel rule. The policy extending the travel rule to cover transactions below 1 million won will stay in place. Previously the rule applied only to transfers above that amount between domestic VASPs.
Timing and wider context
- The revised SFIA amendments will take effect on August 20 if they pass reviews by the Ministry of Government Legislation and other relevant agencies.
- These regulatory moves come as South Korea prepares to revisit a long-delayed crypto tax regime set to begin in January 2027. Lawmakers are expected to reassess the tax plan after a petition to abolish the framework recently gathered enough signatures to compel discussion in the National Assembly, according to Bitcoinist.
Bottom line
The FIU appears to have struck a compromise that keeps tougher controls in place but shifts responsibility for nuanced risk judgment to individual firms — a practical concession that reduces the likelihood of a deluge of mechanical suspicious-activity reports while keeping regulators’ AML ambitions intact. Exchanges and other VASPs will now need to beef up internal risk systems and compliance capacity ahead of the August effective date (pending final approvals).
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