South Korea's Cabinet has approved an amendment that eliminates the reporting threshold for cryptocurrency transfers and introduces mandatory financial-health tests for exchange operators, marking a significant expansion of the country's digital asset oversight. The measures come as South Korea continues to strengthen a regulatory framework that already includes the Virtual Asset User Protection Act, which took effect in July 2023 and established investor protection obligations and penalties for unfair trading practices.

Travel Rule Reporting Changes

The Financial Intelligence Unit (FIU) under the Financial Services Commission (FSC) approved revisions to the enforcement decree of the Act on Reporting and Using Specified Financial Transaction Information.

The key change targets the Travel Rule, which requires sending platforms to transmit sender and receiver details to the receiving platform. Since taking effect on March 25, 2022, the rule applied only to transfers exceeding 1 million won (approximately $700). Under the amendment, that threshold is removed entirely, extending the reporting obligation to transfers of any value. The change aligns South Korea more closely with the Financial Action Task Force's updated guidance, which recommends applying Travel Rule obligations without a monetary floor.

Platforms receiving transfers without the required sender information from the originating platform must now request the missing data and refuse the transaction if it is not provided.

Transfers to foreign platforms and self-hosted wallets will now be categorized by risk level. Overseas exchanges classified as low-risk may receive transfers without restrictions. Transfers to other foreign exchanges and personal wallets are permitted only when the sender and recipient are the same verified party. Any transfer rated high-risk is blocked outright.

The FIU stated that the policy change was prompted by observed patterns of cryptocurrency being split into sub-1 million won amounts, distributed across personal wallets of unclear origin, and then consolidated back into a single address.

Stricter Exchange Operator Vetting

The amendment broadens the definition of a controlling shareholder at a virtual asset service provider (VASP). The revised scope now includes anyone who appointed a majority of a firm's directors or its chief executive. Where the largest shareholder is itself a corporate entity, that company's own top shareholder and representative will also be subject to review.

New exchange operators seeking registration must maintain a debt-to-equity ratio at or below 200%, must not have disrupted credit order through default in the preceding three years, and must demonstrate no canceled license under financial law within the past five years. Failure to meet these criteria can result in rejection of registration. Existing operators are granted a one-year reprieve on the debt-ratio requirement.

Executives must also meet the eligibility standards established by the Act on Corporate Governance of Financial Companies.

Implementation Timeline

The registration provisions and notice rules for sanctioned former staff take effect on August 20. The expanded Travel Rule and overseas-transfer restrictions come into force six months later, in February 2027.

The FIU has revised its registration manual accordingly and, together with the Financial Supervisory Service, has scheduled a public briefing on August 13 for licensed VASPs and firms preparing to apply.

Regulatory Context

The FSC has been tightening its oversight since Bithumb made an erroneous payout of approximately $40 billion in Bitcoin, an incident that prompted requirements for five-minute ledger reconciliations at exchanges and stricter registration rules for major platforms.