South Korea Tightens VASP Reviews, Expands Travel Rule to All Crypto Transfers

South Korea will tighten screening standards for virtual asset service providers, or VASPs, and expand the travel rule to all virtual-asset transfers.

The Financial Intelligence Unit under the Financial Services Commission said on Aug. 11 that the Cabinet had approved a revised enforcement decree of the Act on Reporting and Using Specified Financial Transaction Information. The revision strengthens review requirements for VASP filings and broadens anti-money laundering, or AML, obligations.

The scope of major shareholders subject to review will be expanded. Shareholders who appointed the chief executive officer or a majority of the board will be classified as major shareholders. If the largest shareholder is a corporation, that company’s largest shareholder and representative will also be subject to review.

The revision also spells out grounds for rejecting a filing. Operators must maintain a debt ratio of 200% or less and must not have undermined credit discipline through defaults or similar conduct over the past three years. A filing may also be rejected if the applicant is classified as a troubled financial institution or has had a license or registration revoked under financial laws. Existing operators will get a one-year grace period before the debt-ratio requirement takes effect.

VASPs will also be required to secure professional staff, information-technology and security systems, and internal controls for user protection. Existing operators will also receive a one-year grace period for those requirements.

AML rules will be tightened as well. The travel rule, which now applies only to transactions of 1 million won ($720) or more, will be extended to all virtual-asset transfers between registered operators regardless of amount. Authorities said the change is intended to prevent attempts to evade regulation by splitting transactions into smaller amounts.

Receiving operators will also be required to verify remittance information. If information is missing, they will be allowed to ask the sending operator to provide it or refuse the transaction.

South Korea is also tightening oversight of transactions with overseas exchanges and personal wallets. Transfers involving low-risk overseas exchanges will still be allowed. For other overseas exchanges and personal wallets, transactions will be permitted only when the sender and recipient are the same person. High-risk transactions will be banned, and operators handling transactions of 10 million won ($7,200) or more must establish and run their own suspicious-transaction monitoring systems.

The provisions related to the VASP registration regime will take effect on Aug. 20. The expanded travel rule and the rules covering overseas exchanges and personal wallets will take effect six months after promulgation.

The FIU said it has prepared a filing manual reflecting the revised system and plans to hold a briefing with the Financial Supervisory Service for VASPs and related parties on Aug. 13.