South Korean financial regulators have made significant adjustments to their proposed changes to the Specific Financial Information Act (SFIA), specifically regarding the reporting rules for large cryptocurrency transactions.
Changes in Reporting Requirements for Crypto Transfers
Recently, the Financial Services Commission’s Financial Intelligence Unit (FIU) announced plans to simplify the reporting obligations for selected overseas crypto transactions.
In March, the FIU had proposed amendments to the SFIA, which serves as the core legal framework for managing digital assets, cryptocurrencies, and Anti-Money Laundering (AML) efforts in South Korea.
The initial guidelines mandated that domestic operators report crypto transfers exceeding 10 million Korean won (approximately $6,400) as suspicious activities involving foreign platforms or private wallets, irrespective of any assessed risk.
However, the FIU has since revised its approach, allowing companies to develop their own AML risk management systems. An official stated, “To avoid blanket reporting based solely on a 10 million won threshold, firms will now be responsible for conducting their own qualitative assessments of risky transactions.”
This decision followed consultations with representatives from crypto exchanges aimed at gathering feedback on the proposed SFIA amendments.
Concerns arose from the Digital Asset Exchange Joint Council (DAXA), which expressed opposition to the initial amendments. after assessing input from 27 virtual asset service providers (VASPs), DAXA highlighted the potential for confusion and impractical compliance challenges. Under the original proposal, suspicious transaction reports from South Korea’s five major exchanges were projected to balloon from approximately 63,408 cases in the previous year to an astounding 5,445,133 cases.
Clarifications on Compliance and Customer Due Diligence
The proposed adjustments include relaxing stringent customer due diligence requirements that were previously heightened in the original amendment. Initially, enhanced due diligence was mandatory for transactions labeled as high-risk or suspicious, involving the verification of the transaction’s source and intent.
Under the revised guidelines, companies will need to perform enhanced due diligence only for transactions categorized as particularly high-risk. Moreover, a one-year grace period will be introduced for small virtual asset businesses regarding the debt-to-equity ratio requirements, which previously mandated a 200% threshold.
Nevertheless, the policy extending the travel rule to crypto transactions below 1 million won remains intact. This rule will still apply exclusively to transfers made between domestic virtual asset providers. Should the revised bill receive approval from the Ministry of Government Legislation and other relevant authorities, it is expected to come into effect on August 20.
These developments occur alongside preparations for the long-awaited implementation of a crypto tax law that is set to begin in January 2027. Legislative discussions on this tax framework are anticipated to follow growing public pressure, as highlighted by a recent petition that gathered sufficient support to be addressed in the National Assembly.
