Financial regulators weigh introducing an administrative penalty system under the Specified Financial Information Act…tougher sanctions for crypto exchanges’ AML breaches

It has been confirmed that financial authorities are reviewing a plan to introduce an administrative penalty system under the Act on Reporting and Using Specified Financial Transaction Information (the Specified Financial Information Act). The move aims to shore up the current sanctions framework—largely centered on administrative fines—for virtual asset service providers’ breaches of anti-money laundering (AML) obligations, by adding tougher monetary sanctions such as penalties linked to revenue.

According to the financial sector on the 22nd, the Korea Financial Intelligence Unit (FIU) is conducting a research service on “measures to introduce an administrative penalty system under the Specified Financial Information Act.” The scope is said to include selecting types of violations subject to penalties, designing imposition standards and calculation methods, introducing penalties as an alternative to business suspension, and preparing amendments to related laws and regulations. As the study is premised on legislative design rather than a simple review, the possibility of institutionalization is also being discussed.

The FIU is reported to be internally sharing concerns about whether the current administrative fine system has sufficient deterrent effect. At present, the Specified Financial Information Act provides only administrative fines as a monetary sanction, with a relatively low ceiling, and there are many cases in which amounts are reduced during court proceedings. In particular, while breaches of recurring reporting obligations—such as STR (suspicious transaction reporting), KYC (know-your-customer), and enhanced due diligence for high-risk customers—can result in the accumulation of per-case fines, there has been criticism that poor operation across internal control systems as a whole can end up receiving relatively light sanctions.

Against this backdrop, authorities are said to be considering making internal-control failures—such as inadequate frameworks for managing high-risk customers, failure to report large volumes of suspicious transactions, and the formalistic operation of travel rule compliance systems—subject to administrative penalties. Unlike simple reporting omissions, this approach seeks to hold firms accountable for overall system management responsibilities.

As for how penalties would be calculated, options being discussed include a revenue-linked model imposing a certain percentage of the previous fiscal year’s sales, a method based on the value of transactions related to the violation, and a model focused on disgorgement of illicit gains. Authorities are also reviewing introducing penalties that would substitute for the request for business suspension under Article 15 of the Specified Financial Information Act. The idea is to boost the effectiveness and enforceability of sanctions by allowing major violations to be addressed with large penalties in lieu of ordering business suspension.