The 1 million won threshold for applying the travel rule to asset transfers between digital asset exchanges will be abolished. Major shareholders and the top shareholder and chief executive of a corporate largest shareholder will also be included in reporting reviews for exchanges, and requirements for financial soundness and social credit will be tightened.

The Financial Intelligence Unit (FIU) said a revised enforcement decree of the Act on Reporting and Using Specified Financial Transaction Information, containing those measures, was approved at a Cabinet meeting on Monday.

The revision is a follow-up step to amendments to the Act on Reporting and Using Specified Financial Transaction Information promulgated on Feb. 19. It specifies criteria for rejecting reports by virtual asset service providers, the scope of major shareholders subject to review, and anti-money laundering duties related to digital asset transfer transactions.

First, the scope of review for reports by virtual asset service providers will be expanded. In addition to existing major shareholders, it will include shareholders who appoint a chief executive or a majority of directors. If the largest shareholder is a corporation, the top shareholder and the chief executive of that corporation will also be subject to review.

Criteria for rejecting reports have also been specified. A virtual asset service provider must have a debt ratio of 200 percent or less and must not have harmed credit order through defaults over the past 3 years. A report may also not be accepted if the entity is an insolvent financial institution or if its business authorisation, licence or registration has been revoked under financial laws.

However, user deposits and unpaid balances of operators managing prepaid electronic payment instruments will be excluded from calculations of total liabilities. For existing virtual asset service providers, application of the debt ratio requirement will be deferred for 1 year.

Internal requirements for exchanges will also be strengthened. They must secure personnel and IT staff with expertise and soundness in virtual asset trading, and have IT and security facilities needed for operations and supplementary facilities to prepare for incidents. They must also establish an internal control system to protect users. This requirement will also be deferred for 1 year for existing operators.

The scope of the travel rule will be expanded significantly. The current obligation to provide information, which applies to transfer transactions of 1 million won or more between reported virtual asset service providers, will be expanded to all transactions. The receiving operator must also take steps such as requesting the information if it is missing or rejecting the transaction.

Financial authorities explained the measure is intended to block so-called split transfers used to evade the travel rule by repeatedly making transactions of less than 1 million won. They presented as a suspected money laundering case an example in which 200 million won was deposited into an exchange over about 3 months, used to buy Tether (USDT), and then withdrawn 216 times in units of less than 1 million won.

Regulation of transactions with overseas exchanges and personal wallets will also be tightened. Depending on the counterparty's risk level, the range of permitted transactions will vary, and for transactions of 10 million won or more, operators must establish and operate their own system for managing suspicious transactions.

Transfers to low-risk overseas exchanges will be allowed, but other overseas exchanges and personal wallets will be allowed only when the sender and recipient are the same. If a counterparty is judged to be high risk, the transaction itself will be prohibited.

Standards for customer due diligence will also be clarified. Financial companies must assess money laundering risk by considering customer characteristics, transaction types and the characteristics of products and services used, and decide whether the customer is subject to enhanced due diligence.

Provisions on the reporting system for virtual asset service providers and notification of sanctions measures for retirees will take effect on Aug. 20. The remaining provisions, including the expansion of the travel rule and anti-money laundering duties related to overseas exchanges and personal wallets, will apply from the day 6 months after the enforcement decree is promulgated.

The FIU plans to hold a briefing session on the revised reporting system at 3 p.m. on Aug. 13 at Dreamplus Gangnam in Seoul for virtual asset service providers and businesses preparing to file reports.

The FIU said, "We plan to continue to operate the virtual asset reporting system strictly in accordance with the revised Act on Reporting and Using Specified Financial Transaction Information and its regulations, and to thoroughly strengthen supervision of virtual asset service providers and virtual asset transfer transactions, for anti-money laundering and user protection."