South Korea's cryptocurrency regulatory landscape is approaching a pivotal juncture, with financial authorities moving to strengthen oversight on one front while lawmakers push to postpone taxation of investment gains. The moves come as South Korea—one of the world's most active retail crypto trading markets—continues to calibrate its approach to digital asset oversight.

Expanded Travel Rule

The Financial Services Commission (FSC), the country's financial regulator, announced that a Cabinet-approved amendment will extend the so-called "travel rule" to cover all cryptocurrency transfers, eliminating the existing 1 million won ($705) threshold. Under current regulations, exchanges are only required to share transaction information for transfers valued at 1 million won or above.

The travel rule stems from recommendations by the Financial Action Task Force (FATF), the intergovernmental body that sets global anti-money-laundering standards, requiring financial institutions to share sender and recipient information for transfers. The revised measure removes the minimum threshold to prevent users from deliberately splitting transactions into smaller amounts to evade compliance. The expanded travel rule and other provisions governing crypto transfers will take effect six months after the revised decree is formally promulgated.

Tighter VASP Screening

The amendment also strengthens registration and screening requirements for virtual asset service providers (VASPs). Background reviews covering legal violations, financial health, and creditworthiness will now extend to major shareholders, in addition to the operators, CEOs, and executives already subject to such scrutiny. Applicants will be required to submit detailed information on major shareholders, including their identities, nationalities, and ownership stakes.

Changes to the VASP registration system are scheduled to take effect on August 20.

Renewed Push to Delay Crypto Taxation

Even as regulatory oversight tightens, efforts to defer the taxation of cryptocurrency investment gains have resurfaced. Representative Jung Sung-kook of the main opposition People Power Party recently introduced a bill that would push back the tax's implementation from 2027 to 2030.

The tax, which has already been postponed multiple times, is currently slated to take effect at the start of next year at a combined rate of 22 percent, including local income tax.

Proponents of the delay argue that the market's regulatory and tax infrastructure remains insufficient, particularly for transactions involving overseas exchanges, decentralized exchanges, personal wallets, and peer-to-peer transfers. They also contend that taxing crypto gains could raise concerns about tax fairness following the scrapping of a financial investment income tax that had applied to income from financial investments such as stocks.

"Crypto taxation should begin only after adequate investor protections and a fair tax system are in place," Jung said. "Rather than rushing to impose the tax, sufficient time should be allowed to establish the necessary framework, improve taxpayers' predictability and minimize market disruption."

Source: The Korea Times