South Korea is increasing control over cryptocurrency transfers by removing one of the most important reporting exemptions. The country’s Cabinet has approved amendments that abolish the long-standing 1 million won (around $700) threshold for its crypto Travel Rule. This means that from now on, every crypto transfer between exchanges needs to be registered and recorded.
The loophole has long allowed users to avoid anti-money-laundering checks by breaking large transactions into dozens or even hundreds of smaller transfers. South Korea is increasing its regulatory and oversight efforts, while still allowing and supporting crypto trade.
What Is the Crypto Travel Rule?
The travel rule is an anti-money-laundering requirement set up by the Financial Action Task Force (FATF), the global body responsible for setting standards against financial crime. It requires crypto businesses to collect and record basic personal information about their users when they transfer funds between platforms.
Cryptos are widely used in industries such as gaming and betting, but also transport and as speculative assets.
According to the BC.Game review gambling platforms operating in Korea have long accepted crypto as a payment method. The players using these platforms enjoy many benefits for paying with cryptos. The payments are faster, less expensive, and they can be tied to smart contracts. In recent years, however, traditional businesses such as banks and insurance companies have also started using crypto, and it has led to further regulation.
Until now, South Korea only gathered such personal information for transfers above 1 million won. Smaller transfers could move between registered Virtual Asset Service Providers (VASPs) without information sharing.
Why Regulators Decided to Scrap the Threshold
South Korean authorities were aware of the weaknesses of this regulation early on. Users split their transfers into amounts lower than the threshold, and they could avoid the registration altogether, as long as they were willing to make several transfers and cover the fees.
The Korea Financial Intelligence Unit (KoFIU) cited a real investigation involving approximately 200 million won that was converted into USDT before being withdrawn in 216 separate transactions. Each of these was below the threshold and therefore wasn’t recorded.
Regulators have claimed that as many as 60 percent of all the transfers are below the legal requirement, meaning that the majority of transactions aren’t monitored at all. The authorities have therefore concluded that the rule isn’t effective and needs to be replaced.
The officials are determined to improve transaction traceability and make it harder for illicit funds to move through regulated platforms unnoticed.
What Changes for Exchanges and Crypto Users?
The change will be felt by every Korean crypto user who makes transfers. There’s no longer a threshold to meet, and therefore every transfer, no matter how small in size, will be recorded. The rules are placing the burden to handle compliance on exchanges. This means that both the sending and receiving platforms will change how they act towards their users in requiring them to provide personal information.
If required data is missing, exchanges can request additional information or reject the transaction altogether.
There are also new rules for using overseas exchanges and self-custody wallets. South Korean VASPs will be required to assess the risk level of foreign counterparties before allowing transfers. For low-risk exchanges, things may continue normally, but transfers of higher risk will be controlled more closely. In some cases, they will be allowed when the sender and receiver are the same person, meaning when the holder is moving assets from one platform to another.
Another important addition is enhanced monitoring for larger cross-border movements. For transfers valued over 10 million won, crypto providers must establish internal suspicious transaction monitoring systems.
A Higher Bar for Crypto Compliance
The decision to change the rules and remove the threshold has created a higher bar for crypto compliance. Some countries, such as the US, still have such a threshold, but South Korea has decided to require more out of its crypto platforms. It’s partly due to how widely crypto is used in South Korea and how many holders use the rule to avoid providing information.
The new rules won’t be applied right away. Instead, the Travel Rule amendments will come into force six months after the decree is formally promulgated. It should give the exchanges enough time to prepare the infrastructure needed to comply.
