South Korea’s Financial Services Commission and Financial Intelligence Unit proposed amendments on March 30 that would require crypto exchanges to file suspicious transaction reports on all overseas-linked transfers above 10 million won ($6,800), regardless of actual risk assessment. The Digital Asset eXchange Alliance warns the rule could increase annual reports from major exchanges to 5.4 million, up 85-fold from the 63,000 filed last year.
Regulatory Tightening Follows Exchange Enforcement Actions
The proposed amendments emerge after the FIU imposed sanctions on South Korea’s largest exchanges for alleged anti-money laundering violations. Coinone received a 5.2 billion won fine, while Upbit and Coinone each faced three-month partial business suspensions and Bithumb a six-month suspension for failures in customer due diligence and transactions with unregistered foreign virtual asset service providers. Despite these penalties, Upbit won a first-instance court ruling on April 9 canceling its business suspension, and Bithumb received court relief suspending enforcement. The FIU appealed Upbit’s decision on April 30.
Compliance Scale Deemed Operationally Impossible
DAXA, representing 27 registered virtual asset service providers including Upbit, Bithumb, Coinone, Korbit, and Gopax, argues the rule imposes obligations “not clearly set out in the underlying law” and creates operational chaos. The proposed threshold of 10 million won would trigger mandatory reporting on routine cross-border transactions, flooding the FIU with reports and eliminating meaningful risk-based screening. The industry body contends the scale exceeds what compliance infrastructure can handle while maintaining service continuity.
Broader AML Enforcement Strategy Under Scrutiny
The proposal reflects South Korea’s intensifying focus on virtual asset regulation following years of compliance gaps. However, the blunt-instrument approach of mandatory reporting on all overseas transfers contradicts international AML standards, which emphasize risk-based detection. The rule’s effectiveness depends on the FIU’s capacity to process and investigate millions of additional reports. July is set for finalization, with the public notice period closing May 11.
