South Korea's Financial Supervisory Service will introduce standards to directly regulate the overall resale of virtual accounts by payment gateway firms. The aim is to prevent illegal acts using virtual accounts at the source by covering merchant screening, transaction blocking and anti-money laundering obligations.

The FSS said on Tuesday it will introduce “virtual account resale processing standards” for PG firms to prevent crimes such as illegal gambling and voice phishing that exploit virtual accounts. The standards will take effect on July 1 after a preparation period including system development by PG firms.

Financial authorities have previously asked issuing institutions such as banks to strengthen internal controls, while also conducting inspections of PG firms showing suspicious transactions and notifying investigative authorities. In practice, 14 PG firms with signs of involvement in illegal acts since 2024 have been reported to investigative authorities.

However, critics have pointed to limits in voluntary responses because current laws and regulations do not clearly define PG firms’ obligations to manage merchants, prompting the creation of the new standards.

Broad rules to cover merchant screening, transaction blocking and AML

The standards consist of three pillars: merchant screening and follow-up management, pre-emptive blocking of suspected illegal transactions, and anti-money laundering obligations.

First, PG firms must establish screening procedures to verify a merchant’s existence, financial soundness and business purpose. After contracts are signed, they must continuously review usage and consider suspending service or terminating contracts if suspicious signs are found.

To block illegal transactions, one-time virtual accounts will be the principle. Fixed virtual accounts that allow repeated deposits will be issued only on a limited basis when purposes such as regular collections are confirmed. For settlement, batch or delayed settlement, rather than real-time settlement, will be the principle.

PG firms must also carry out anti-money laundering obligations such as customer due diligence (CDD) and suspicious transaction reports (STR), and continuously monitor merchant transactions.

Pre-emptive block on criminal use of virtual accounts, effective July

The FSS expects the standards to strengthen PG firms’ internal controls and pre-emptively block the possibility of virtual accounts being used for crime.

It also plans to filter out merchants suspected of illegal activity through ongoing monitoring after contracts are signed, and prevent the spread of damage through follow-up measures such as suspending use or terminating contracts.

The FSS said, “After the system is implemented, we will inspect the status of compliance by PG firms and plan to conduct additional inspections if illegal or unsound business practices are suspected.” It added, “We also plan to guide financial companies such as banks to verify whether PG firms are complying with their processing standards when signing contracts with PG firms to resell virtual accounts.”