South Korea eliminates minimum threshold for crypto Travel Rule enforcement
The South Korean government is eliminating the 1 million won minimum threshold for its Travel Rule, requiring information-sharing protocols for all cryptocurrency transfers among registered virtual asset service providers.
The South Korean government is set to broaden the scope of its cryptocurrency Travel Rule by applying it to every transaction between registered virtual asset service providers (VASPs), effectively eliminating the existing 1 million won (approximately $700) minimum threshold.
On Tuesday, amendments to the Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information received approval from the nation's Cabinet.
Following these modifications, the Travel Rule will be enforced on every transaction between registered cryptocurrency service providers, with no minimum transaction value required. Platforms receiving transfers will also need to collect information about both senders and recipients, and will have the authority to request any missing data or decline transactions when necessary information cannot be obtained.
The decision to eliminate the minimum threshold aims to close a loophole that allowed users to bypass the regulation by breaking up larger transfers into multiple smaller transactions, as explained by the Financial Intelligence Unit.
The agency referenced a specific instance where an individual deposited approximately 200 million won into a cryptocurrency exchange to purchase Tether USDt (USDT), subsequently executing 216 separate withdrawals, with each transaction valued at less than 1 million won.
South Korea tightens rules for overseas exchanges, personal wallets
The regulatory amendments additionally establish new Anti-Money Laundering (AML) protocols for cryptocurrency transfers that involve overseas crypto exchanges and private wallets.
Locally registered VASPs will need to assess and determine which transfers to permit based on the level of risk presented by the counterparty. While transfers directed to low-risk foreign exchanges will be authorized, transactions involving other international exchanges and private wallets will typically be permitted only when both the sender and recipient are verified as the same individual.
Conversely, any transactions involving counterparties classified as high risk will be strictly prohibited.
Additionally, cryptocurrency platforms will be obligated to implement their own monitoring systems for suspicious transactions, specifically for transfers valued at 10 million won or more that involve foreign exchanges or private wallets.
According to South Korean regulatory authorities, there has been a notable rise in suspected money laundering activities involving overseas exchanges and private wallets, as bad actors have exploited loopholes in the current AML regulations that govern these types of transfers.
The decree further reinforces registration criteria for cryptocurrency service providers, incorporating requirements related to financial stability, internal control mechanisms, staffing levels and infrastructure benchmarks, while also broadening the examination of major shareholders.
The VASP registration provisions are scheduled to become effective on Aug. 20, though existing providers will be granted an additional year to achieve full compliance with certain financial, staffing, infrastructure and internal control requirements. The enhanced Travel Rule and other transfer-related AML requirements will come into force six months following the official promulgation of the decree.