South Korea is preparing a sweeping expansion of its crypto anti‑money laundering framework, extending the Travel Rule to transactions below 1 million won (around $680) and moving to block “high‑risk” offshore exchanges from serving local users. The changes are designed to close loopholes exploited for money laundering, tax evasion, and other illicit finance, while bringing the country’s regime closer to global Financial Action Task Force (FATF) standards.
Background: Travel Rule and current framework
South Korea currently applies the crypto Travel Rule to virtual asset transfers above 1 million won, requiring exchanges to share sender and recipient information for covered transactions. The regime is implemented through amendments to anti‑money laundering (AML) laws and enforced by the Financial Services Commission (FSC) and the Korea Financial Intelligence Unit (KoFIU).
The Travel Rule, derived from FATF Recommendation 16, is intended to ensure that originator and beneficiary information accompanies virtual asset transfers between Virtual Asset Service Providers (VASPs). South Korea has used this framework, together with a real‑name trading system and mandatory VASP registration, to position itself as one of the more tightly regulated crypto markets in Asia.
New move: Travel Rule below $680
Regulators now plan to extend the Travel Rule to all crypto transfers, including those under the existing 1 million won threshold, effectively removing the lower limit. FSC Chair Lee Eok‑won has indicated at parliamentary and AML‑focused events that authorities will “crack down on crypto money laundering” by applying Travel Rule obligations to sub‑1‑million‑won transactions.
Officials say the change is aimed at closing a loophole that allowed users to split larger transfers into multiple smaller payments—a practice often referred to as “smurfing”—to avoid reporting and identity verification requirements. Under the new framework, VASPs will be required to collect and transmit originator and beneficiary data, and verify user identities, even for low‑value transfers that were previously outside the scope of the rule.
Rationale: tackling money laundering and tax crime
The FSC and related agencies have framed the reforms as part of a broader crackdown on crypto‑enabled financial crime, including tax evasion, drug trafficking and illicit overseas payments. Authorities argue that illicit actors frequently exploit smaller, repeated transactions to move funds anonymously, undermining the effectiveness of traditional AML thresholds.
By extending the Travel Rule to all transfers, regulators aim to enhance traceability across the domestic crypto ecosystem and strengthen their ability to freeze assets or intervene in suspicious flows at an early stage. The reforms also respond to FATF criticism of gaps in implementation and seek to align South Korea’s regime more closely with evolving global standards for virtual asset supervision.
Blocking “high‑risk” offshore exchanges
Alongside the Travel Rule expansion, South Korea plans to restrict or block access to offshore crypto trading platforms deemed “high risk” from an AML or consumer‑protection perspective. Regulators have signaled that foreign exchanges operating without registration, adequate AML controls or cooperation with domestic oversight will face service bans for Korean users.
The strategy builds on earlier actions in which KoFIU moved to block unregistered overseas exchange apps on major app stores for operating without proper authorization. Under the new push, high‑risk foreign platforms are expected to be excluded from the Korean market, with local users steered toward registered VASPs subject to full AML and Travel Rule obligations.
Tougher conditions for local VASPs
Domestic exchanges and other VASPs will face stricter licensing, governance and financial soundness requirements as part of the same reform package. Proposed measures include enhanced financial reviews, higher standards for internal controls, and broader criteria for VASP registration aimed at ensuring that only robust, well‑capitalized firms can operate.
Authorities also plan to bar individuals with records of serious crimes—such as drug offenses or major tax violations—from becoming major shareholders or key decision‑makers in licensed crypto firms. These fit within the Virtual Asset Users Protection Act framework, which already prohibits market manipulation, insider trading, and unfair trading practices across virtual asset markets.
Operational impact on exchanges and users
For exchanges, the removal of the 1 million won threshold means they will need to apply full know‑your‑customer (KYC) and Travel Rule processes to all transfers, regardless of size. This entails upgrading compliance systems, integrating Travel Rule messaging solutions with counterpart VASPs, and recalibrating transaction monitoring tools to handle significantly higher data volumes.
Retail users and traders may experience more friction, as even small withdrawals or transfers between platforms will trigger identity checks, information‑sharing and possibly longer processing times. Analysts expect higher compliance costs for local exchanges and some dampening of low‑value retail activity, although the market structure—dominated by regulated domestic platforms—is likely to remain intact.
Timeline and legislative process
The government intends to embed the expanded Travel Rule and related measures in a broader AML overhaul that will be finalized in the first half of 2026, subject to legislative review. Lawmakers will consider amendments to existing AML statutes, including those governing KoFIU’s powers and VASP obligations, before the new framework takes effect.
In preparation, supervisory authorities are expected to issue detailed guidance to VASPs on Travel Rule implementation below the 1 million won level, criteria for assessing high‑risk counterpart exchanges, and enhanced reporting expectations for suspicious activity. Market participants anticipate a phased rollout with transitional periods, but regulators have emphasized that the overall direction of tighter oversight is fixed.
International cooperation and FATF alignment
South Korea will also bolster international cooperation on crypto‑related AML, with the Financial Intelligence Unit gaining stronger authority to freeze accounts quickly in serious cases and to share information with foreign counterparts. Officials present these steps as part of a coordinated effort to reduce regulatory arbitrage and prevent illicit actors from shifting activity to jurisdictions with weaker controls.