Korea Urges FATF to Tighten Rules on Small Crypto Transfers

TLDR

• South Korea wants FATF rules to cover even small crypto transfers.

• FIU says low-value transfers can help users avoid AML checks.

  

• Offshore VASPs face stronger scrutiny under Korea’s proposal.

• Stablecoins and DeFi remain key concerns in FATF discussions.

• Exchanges may face higher costs if thresholds are removed.

South Korea has urged global regulators to apply the Travel Rule to small crypto transfers. The proposal targets offshore risks, regulatory gaps, and transaction splitting. It could increase compliance duties for cryptocurrency exchanges worldwide.

FIU Seeks Broader Travel Rule Coverage

South Korea’s Financial Intelligence Unit presented the proposal during a Financial Action Task Force plenary meeting in Paris. The agency called for consistent rules across member jurisdictions. It also urged regulators to cover transfers below existing reporting limits.

The Travel Rule requires crypto platforms to collect and share information about senders and recipients. However, many jurisdictions apply minimum transaction thresholds. Therefore, users can divide large transfers into smaller amounts to avoid compliance checks.

This practice, known as smurfing, weakens transaction monitoring and hides links between connected payments. South Korea wants exchanges to examine transfers regardless of their value. The FIU also wants both sending and receiving platforms to share customer information.

Korea Targets Offshore Crypto Platforms

The FIU said different licensing systems allow offshore platforms to exploit regulatory gaps. Some exchanges operate without registration or effective anti-money laundering controls. As a result, cross-border transfers can move through platforms with limited supervision.

South Korea proposed stronger checks for transfers involving unregistered or high-risk virtual asset service providers. Regulators could restrict transactions when overseas platforms fail to provide required customer data. This approach would place responsibility on both sides of each transfer.

The proposal also supports stronger customer checks for transactions linked to risky jurisdictions. FATF members continue to report weak implementation of virtual asset rules. Several major crypto markets still apply inconsistent standards to exchanges and cross-border transfers.

Domestic Rule Change Sets Global Example

South Korea plans to remove its one million won Travel Rule threshold through a domestic regulatory amendment. The current threshold equals roughly $730, although exchange rates can change. The revised rule would cover transfers below that amount.

The FIU previously considered mandatory reports for large transfers to overseas exchanges and private wallets. Local exchanges opposed a fixed reporting level. Regulators later chose a risk-based system after consultations with the Digital Asset Exchange Joint Council.

Under that model, exchanges will assess suspicious activity using internal risk controls and transaction patterns. They will also update systems for broader information sharing. The domestic changes could show other FATF members how threshold removal works in practice.

Stablecoins and DeFi Face Wider Scrutiny

FATF members also reviewed money laundering risks involving stablecoins, decentralized finance and cybercrime. Stablecoins support fast cross-border transfers and often operate across several jurisdictions.  Regulators want stronger coordination between national enforcement agencies.

The discussions also covered criminal use of artificial intelligence and digital assets. Authorities said advanced tools can support complex laundering methods. They also linked some virtual asset activity to cyber fraud and weapons financing.

Removing Travel Rule thresholds would increase operating costs for exchanges handling small transactions. Platforms would need reliable systems for identity checks and secure data transmission. Users could face more verification steps when transferring crypto across borders.

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