Cryptocurrency Industry in South Korea Raises Alarm Over Excessive AML Regulations: Report
The Digital Asset eXchange Alliance (DAXA) has expressed concerns that new regulatory proposals would cause suspicious activity reports from the nation's top five crypto platforms to exceed 5.4 million annually, according to Yonhap.
The cryptocurrency sector in South Korea has raised concerns that proposed revisions to Anti-Money Laundering (AML) regulations could generate significant operational challenges by requiring virtual asset service providers (VASPs) to flag all international virtual asset transfers valued at 10 million Korean won (approximately $6,800) or higher as potentially suspicious activity.
Based on a Sunday report from Yonhap News, the Digital Asset eXchange Alliance (DAXA), which represents exchanges operating in South Korea, filed formal feedback regarding the proposed modifications to the Enforcement Decree of the Specific Financial Information Act along with associated supervisory regulations. These submissions captured the perspectives of 27 registered VASPs, encompassing the nation's five leading exchanges: Upbit, Bithumb, Coinone, Korbit and Gopax.
According to DAXA's assessment, the proposed regulations would cause suspicious transaction filings from the country's five biggest exchanges to surge by 85-fold, jumping from approximately 63,000 reports last year to more than 5.4 million, rendering practical compliance extremely challenging. The organization additionally opposed a proposed mandate requiring verification of customer information accuracy, contending that subordinate regulations are imposing duties not explicitly outlined in the parent legislation.
This resistance underscores escalating friction between South Korea's initiative to strengthen cryptocurrency AML supervision and industry apprehensions that compliance obligations are being extended beyond what trading platforms can feasibly manage.
The Financial Services Commission (FSC) alongside the Financial Intelligence Unit (FIU) introduced these amendments on March 30, initiating a public commentary window running through May 11. According to the proposal, domestic VASPs executing virtual asset transfers with international VASPs would need to flag transactions worth 10 million won or above as suspicious irrespective of their risk profile. Following regulatory and legal examination, the regulations are anticipated to reach finalization in July.
Courts halt FIU's AML sanctions on major exchanges
This industry resistance emerges while South Korean trading platforms are simultaneously contesting AML-related penalties levied by the Financial Intelligence Unit through judicial channels.
On April 9, Dunamu, the company operating Upbit, secured a favorable first-instance judgment overturning a three-month partial operational suspension connected to purported infractions involving customer due diligence procedures and dealings with unregistered foreign virtual asset service providers. Nevertheless, the regulatory authority filed an appeal against this ruling on April 30, as reported by Yonhap.
This past Friday, cryptocurrency platform Bithumb similarly obtained judicial intervention when the Seoul Administrative Court halted the implementation of a six-month partial business suspension pending resolution of the primary legal matter. The FIU had imposed this penalty following an examination that uncovered alleged breaches of South Korea's Financial Information Act, including deficiencies related to dealings with unregistered VASPs.
Coinone, which faced a three-month partial operational suspension alongside a 5.2 billion won financial penalty for purported AML compliance failures, likewise secured a temporary stay after mounting a legal challenge to the sanctions. Domestic media outlets indicated the matter concerned customer verification deficiencies and commercial activity with unregistered international virtual asset service providers.