Key Takeaways
South Korea’s crypto industry is formally opposing a government proposal that would require exchanges to report all overseas transfers over 10 million won (about $6,800) as suspicious, warning the rule would create operational paralysis.
"The proposal could increase suspicious transaction reports from South Korea’s five largest exchanges by 85 times, from about 63,000 cases last year to over 5.4 million," the Digital Asset eXchange Alliance (DAXA), an industry body representing 27 virtual asset service providers (VASPs), said in comments submitted to regulators, according to a Yonhap News report.
The amendments, proposed by the Financial Services Commission (FSC) on March 30, would force VASPs to flag all international transfers above the threshold regardless of actual risk. The rules, which are expected to be finalized in July after a comment period ending May 11, are part of a broader government push to monitor international crypto flows, including a recent bill bringing crypto firms under the Foreign Exchange Transactions Act.
The conflict highlights a growing rift between regulators and an industry already battling the Financial Intelligence Unit (FIU) in court over prior sanctions, setting the stage for a critical decision that could severely strain the operational capacity of exchanges like Upbit, Bithumb, and Coinone.
DAXA, which represents the country’s five largest exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—argued the blanket reporting requirement would be impossible to implement. The group contends that the sheer volume of reports would overwhelm compliance departments, making it difficult to identify genuinely illicit activity.
The industry also objected to a related requirement to verify the accuracy of customer information on the grounds that it imposes obligations not explicitly defined in the underlying law. This pushback is part of a larger pattern of tension between South Korea's efforts to tighten Anti-Money Laundering (AML) oversight and the industry's concerns about expanding compliance burdens beyond what is operationally feasible.
The proposed rule does not exist in a vacuum. It follows the recent passage of a bill to amend South Korea's Foreign Exchange Transactions Act, which for the first time brings crypto service providers under the direct oversight of the Finance Minister for cross-border transfers. That law established a new automated monitoring system to track international crypto flows, signaling a clear intent from Seoul to gain full visibility into capital moving in and out of the country via digital assets.
This broader regulatory effort aims to close a gap that previously saw cross-border crypto transactions fall outside the specialized structure governing traditional forex, a move experts believe is intended to curb illicit outflows and improve tax compliance.
The industry's resistance is amplified by ongoing legal battles between major exchanges and the FIU. Upbit, Bithumb, and Coinone have all recently secured temporary court injunctions halting business suspension orders imposed by the regulator over alleged AML failures.
These cases, which involve alleged violations tied to customer due diligence and transactions with unregistered overseas VASPs, show the relationship between the industry and its primary regulator is already strained. The industry's decision to publicly challenge the new 10 million won reporting rule suggests a willingness to continue fighting regulatory overreach in court, setting up a potentially protracted conflict over the future of crypto regulation in one of the world's most active digital asset markets.
This article is for informational purposes only and does not constitute investment advice.
