South Korea's virtual asset regulation, concerns over overseas capital outflows intensify

If virtual asset transactions exceeding 10 million Korean won domestically are changed to a unified reporting system, concerns have been raised that this contradicts the original intention of anti-money laundering policies, and may instead lead to capital outflows and weaken the control functions of domestic exchanges.

At a seminar held on the 12th at the National Assembly Members’ Office Building in Yeongdeungpo, Seoul, titled “U.S. Stablecoin Anti-Money Laundering Regulatory System and the Preparation of Korea’s Specific Financial Information Act,” lawyer Han Rui-xi from the Law Firm Square pointed out this issue in the legislative preview of the “Amendment to the Enforcement Decree of the Specific Financial Information Act” and the “Amendment to the Report and Regulation of Specific Financial Transaction Information” announced in March this year. The seminar was jointly hosted by Democratic Party lawmakers Min Byeong-deok, Park Min-gye, and Justice Party lawmaker Shin Jang-sik.

Lawyer Han pointed out that the core contents of the amendments mainly include: abolishing the travel rule baseline amount of 1 million Korean won, the obligation for payment operators to receive information and refuse transactions, evaluation and transaction restrictions for foreign virtual asset operators, automatic suspicious transaction reporting for transactions of 1.6M Korean won or more, and restrictions on transactions from non-custodial wallets. The travel rule refers to the regulation requiring operators to exchange sender and receiver information when sending virtual assets; suspicious transaction reporting is the system of reporting transactions that may involve money laundering to the Financial Intelligence Unit. He indicated that these provisions may carry risks of exceeding legal authority and represent strong regulation that is difficult to find similar cases for even overseas.

Lawyer Han especially noted that domestic exchanges currently serve as “control points,” executing customer identity verification (KYC), the travel rule, and monitoring by the Financial Intelligence Unit. She pointed out that although the current transaction flow between domestic and overseas platforms is bidirectional, if the amendments are implemented, users may shift to overseas platforms or personal wallets to evade regulation, causing capital flows to tilt from Korea to overseas. As a result, capital outflows will be difficult to reintegrate into the domestic system and may increase the management burden on foreign exchange and financial systems.

The seminar also highlighted significant cost burdens. Lawyer Han hypothesized that if Korea transmits assets abroad totaling 160 trillion Korean won annually, averaging about 10 million Korean won per person, there could be approximately 14.4 million split transactions to evade automatic suspicious transaction reports. During this process, with transaction waiting times, an additional approximately 100M Korean won per year could be spent on gas fees (blockchain network transaction fees). Professor Hwang Sijin from the Graduate School of International Information Security at Dongguk University, participating in the discussion, stated that the key to regulation is not its intensity itself but whether it is proportionate to the risk and legally justified, emphasizing the need for redesign. Kim Young-sik, representing Bonanza Factory, a blockchain compliance professional company, also pointed out that due to many circumvention methods such as personal wallets, regulatory effectiveness may be insufficient, and if overseas companies refuse transactions, domestic companies could lose competitiveness. This trend indicates that future virtual asset regulation may no longer simply focus on strengthening but will need to reevaluate the relationship between anti-money laundering, market competitiveness, and international consistency.