Changing Travel Rule Thresholds

While the crypto industry has spent the last few years adjusting to the Financial Action Task Force (FATF) standards, when it comes to crypto compliance, governments and regulators are starting to look even further than the minimum recommendations, and in South Korea this is in the direction of total, granular transparency. The country is considering extending the Travel Rule to cover even the smallest crypto transactions taking place with crypto, and introducing strict mandates for cross-border transfers. With this, South Korea would show that countries with a significant interest in crypto are willing to go hard on rules to clamp down on fraudsters and illicit actors.

Currently, South Korean regulations require exchanges to collect and share sender and receiver data for transactions exceeding 1 million won (approximately US$680); however, this creates a predictable loophole known as ‘smurfing’, where bad actors split large sums into multiple small transfers to fly under the regulatory radar. South Korea’s Financial Intelligence Unit (FIU) wants to end this avenue for abuse. By mid-2026, the FIU wants crypto exchanges to be required to collect identity details for all transfers, regardless of size. This shift would ensure that every satoshi or gwei - or any other amount of crypto - has a documented digital paper trail, transforming the Travel Rule into a comprehensive net to catch any bad actor. In addition to the extension of the Travel Rule, the FIU wants high-risk offshore platforms to be blocked, and criminals barred from owning stakes in licensed crypto firms.

This move is an attempt to combat concerning data. Last year, Korea Customs Service (KCS) data showed that, from 2020 to July 2023, virtual asset-related crimes accounted for 9 trillion won out (US$6.4 billion) of the 11 trillion won detected in foreign exchange violations. These crimes range from simple tax evasion to sophisticated money laundering and drug trafficking.

All this just goes to show why the Travel Rule is so important. Although it’s designed to bring the same level of transparency of the traditional banking system (the SWIFT network) to crypto, its use and now its proposed extension by South Korea highlights critical aspects of blockchain and crypto use:

• Institutional Integrity: For blockchain to be integrated into the global economy, it must shed its reputation as a haven for illicit transactions. By mandating transparency, South Korea would prepare its market for institutional participation.
• Small Scale Risks: The decision to regulate small-value transactions recognizes that systemic risk doesn't just come from multi-million dollar hacks. It also comes from the cumulative effect of thousands of small, illicit trades that fund criminal enterprises.
• Global Synchronization: Crypto is inherently borderless. South Korea’s proposed move to block ‘high-risk’ offshore exchanges that refuse to comply with standards shows that local regulation is only effective if it regulates for global non-compliant actors.
• KYC is King: The need for regulation is continuing to grow beyond even the expected levels put forward by the FATF. With South Korea proposing this move, it shows that compliance will be accelerated by countries looking to get serious about widespread crypto use.

When the Travel Rule threshold is eliminated, the operational burden on South Korean Virtual Asset Service Providers will soar. Meeting such stringent requirements isn't as simple as ticking a box; it requires finding a solution that can maintain the speed and volume and scalability that the crypto market will demand of a business, whilst being affordable for all. That’s where Blockpass can help. With a pre-verified network of over one million users, growing by the day, Blockpass allows businesses to onboard customers instantly while remaining fully compliant with global standards, even when jurisdictions alter their regulatory standards as South Korea is doing.

While some privacy advocates argue that such strict reporting stifles the original ethos of crypto, the South Korean regulators clearly view it as a prerequisite for safety and the removal of bad actors. The sentencing of figures such as Do Kwon and the tightening of the Travel Rule are two sides of the same coin. One sets an example and brings perpetrators of fraud to justice - punishing the failures of the past; the other builds a transparent infrastructure for the future. As South Korea moves toward a total monitoring system, it sets a global precedent: for crypto to be truly stable and gain true adoption, the identities behind the transactions can no longer stay in the shadows.