South Korea’s Financial Intelligence Unit (FIU) informed the Financial Action Task Force (FATF) about the increasing gaps in regulation regarding crypto transfers across national borders and called on all FATF member states to eliminate any minimum transaction threshold required by the Travel Rule. This move would reshape compliance costs for exchanges and trading firms worldwide.
FIU Director Lee Hyung-joo made the case at the 34th FATF plenary session in Paris from June 15 to 19, where more than 200 member jurisdictions reviewed how well countries have implemented anti-money-laundering (AML) standards for virtual assets. The result is clear – compliance is insufficient overall, with countries with the highest trading volumes of virtual assets among the least compliant.
What South Korea proposed
The Korean delegation laid out three linked recommendations at the plenary. First, the Travel Rule, which requires exchanges to verify and share sender and recipient information during transfers, should apply to both the sending and receiving virtual asset service providers (VASP). Second, the rule’s scope should extend below existing minimum thresholds, covering even small-value transactions. Third, FATF members should consider outright transaction restrictions against high-risk, unregistered VASPs, alongside stronger customer due diligence requirements.
Lee pointed to a structural problem: “Licensing and registration requirements, supervision methods, and approaches to offshore virtual asset service providers differ by jurisdiction, resulting in regulatory arbitrage,” according to the Asia Business Daily. That fragmentation, he argued, weakens anti-money-laundering and counter-terrorism financing measures across borders.
Korea is already moving domestically
The FATF proposal tracks a regulatory change Korea plans to enforce in August. An amendment to the Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information will lower the Travel Rule threshold from transactions of 1 million won (roughly $730) and above to all transactions, including those under 1 million won.
The August revision went through its own friction. When the FIU first proposed the changes in March, it also included mandatory suspicious-transaction reporting for any virtual asset transfer above 10 million won to overseas exchanges or personal wallets. However, domestic exchanges protested against the introduction of the mandatory reporting requirement, claiming that it would result in excessive compliance burden and operational confusion.
According to reports, Digital Asset Exchange Joint Council (DAXA), which represents Korea’s major exchanges, submitted its objection to the proposal, pointing out that such a fixed-amount reporting requirement would be burdensome and ineffective within the context of risk-based monitoring programs.
After meeting with exchange officials via DAXA, FIU has decided to give up on the idea of using a fixed-amount reporting requirement and move towards a risk-based approach, where the criteria would be set by the operators themselves.
Global compliance gaps and emerging threats
During the plenary, the FATF emphasized the issues raised by South Korea. The task force plans to release a seventh assessment of how the jurisdictions comply with AML requirements in relation to virtual assets and VASPs. Preliminary results indicate that compliance with FATF Recommendation 15 on the Travel Rule and supervision of exchanges in general is still rather low, Chosun Biz reported. Jurisdictions with the highest trading volumes were also among those with the least consistent implementation.
Moreover, at the plenary, FATF discussed a new assessment of money-laundering and terrorist-financing risks in the field of decentralized finance (DeFi). Member states noted that the use of virtual assets for illegal purposes becomes more diverse and more frequently overlaps with cybercrime and the proliferation of weapons financing. They also stated that AI helps criminals to implement advanced laundering techniques.
Stablecoins were treated separately, as delegates emphasized the need for enhanced cross-border cooperation in light of increased issuance and use beyond the traditional regulatory frameworks. Previously, Cryptopolitan reported that initiatives aimed at regulating stablecoin issuance via inclusion in formal AML systems. In parallel, the FATF members supported ongoing tracking of DeFi protocols’ susceptibility to illicit finance risks.
FATF also adopted a report about public-private partnerships for financial intelligence cooperation that is due to be released in July. It will analyze approaches in different jurisdictions concerning collaboration between regulators, law enforcement agencies, and the private sector in order to increase the detection of fraud and money laundering.
Implications for exchanges and traders
Should FATF member countries follow the Korea example and remove minimum thresholds from the Travel Rule, all cryptocurrency transactions will need to involve the collection and transmission of identity information for the sender and the receiver by exchanges. This would become an expensive operation for exchanges operating in different jurisdictions to manage the infrastructure required to perform identity verification checks on micro-transactions.
South Korea’s schedule provides a preview – the implementation deadline is just weeks away and the local exchanges have already adapted their systems following industry-wide consultations with DAXA earlier this year.
The FATF has retained the high-risk assessment for North Korea, Iran, and Myanmar and has released an updated public statement calling for action against financial crime associated with cyber scams in Myanmar, reports Asia Business Daily.
