The Digital Asset Exchange Alliance (DAXA) Objections
The Digital Asset Exchange Alliance (DAXA), which includes 27 licensed virtual asset service providers in South Korea, has raised formal objections to proposed changes regarding the enforcement decree of the Specific Financial Information Act. As outlined in the draft legislation, domestic exchanges would be mandated to report any funds transferred to foreign virtual asset service providers (VASPs) exceeding 10 million won as suspicious transactions, regardless of any risk factors or the identity of the involved parties.
DAXA argues that this threshold could unfairly categorize a large volume of regular cross-border transactions as suspicious, thus contradicting the Financial Intelligence Unit’s (FIU) previously stated guidelines, which differentiate high-risk and low-risk transactions.
Potential Ramifications
The ramifications of this rule could be significant; DAXA estimates that the major exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—could see their annual suspicious transaction report (STR) filings skyrocket from approximately 63,000 to over 5.4 million. This staggering increase, the alliance warns, would burden compliance departments and obscure genuine anti-money laundering (AML) efforts.
Criticism of Additional Customer Validation Requirements
In conjunction with the STR requirement, DAXA has criticized a proposed rule that would compel exchanges to further validate customer information beyond their current Know Your Customer (KYC) obligations. The alliance contends that the decree imposes impractical demands not explicitly supported by primary legislation.
Legal Conflicts and Court Rulings
This backlash from the crypto industry comes amidst ongoing legal conflicts where Korean exchanges are contesting sanctions imposed by the FIU. Recently, a Seoul court ruled in favor of Dunamu, the parent company of Upbit, lifting a three-month business suspension related to nearly 45,000 transactions with unregistered foreign platforms. The FIU has appealed this decision. Likewise, Bithumb achieved a similar judicial victory on April 30, halting a six-month suspension linked to alleged breaches of specific financial regulations. Coinone has also received a temporary reprieve against a three-month suspension and a significant fine due to issues with KYC compliance.
Future Consultation and Regulatory Landscape
The current consultation phase concerning the 10 million won reporting regulation will continue until May 11, with the finalized decree anticipated to be issued in July, following a regulatory review. There remains a narrow window for negotiations aimed at balancing stricter oversight against what exchanges assert are “excessive and operationally impractical” compliance requirements.
An analysis by crypto.news suggests that this 10 million won threshold forms part of a larger trend that may classify major foreign platforms as high risk for South Korean clientele. Additionally, a separate report points to a lack of clear crypto legislation, prompting the FIU to make broad interpretations of existing laws, which have led to numerous fines and suspensions, now under judicial scrutiny. Meanwhile, recent court decisions acknowledge the attempts by these firms to meet compliance standards, fundamentally altering the regulatory landscape in the process.
