South Korea Officially Moves to Close Travel Rule Loophole

At the end of 2025, South Korea was contemplating stricter implementation of the Travel Rule, going beyond the minimum standards set by the Financial Action Task Force (FATF) in an effort to clamp down on the most common loopholes that criminals were exploiting. Now, in 2026, South Korea has begun to implement this policy. Whilst South Korea might have been the first country to consider this, it won’t be the last, as governments around the world eye zero-threshold transparency in a bid to crack down on illicit activity.

With the regulatory shift now officially underway, South Korea’s Financial Services Commission (FSC) and the Korea Financial Intelligence Unit (KoFIU) are overhauling the nation's Anti-Money Laundering (AML) framework. At the centre of this is the 1 million KRW (approximately US$700) threshold for the Crypto Travel Rule. The FSC has identified a persistent vulnerability in the current system known as ‘smurfing’; by breaking large transfers into multiple transactions just under the previous limit, illicit actors have been able to move significant funds without triggering the identity-sharing requirements of the Travel Rule, rendering it ineffective in its main role.

In order to eliminate this gap, the FSC is removing the threshold for the Travel Rule, meaning crypto exchanges (VASPs) will soon be required to collect and share sender and recipient data for all transactions, regardless of size. With this change, transaction monitoring will move from sporadic, threshold-based checks to an exhaustive, real-time monitoring system that leaves no room for the ‘split transactions’ that smurfing uses to go unnoticed.

This regulatory tightening will also see the FSC bringing stablecoins into the AML regime; transactions involving stablecoins, particularly those moving to personal unhosted wallets or offshore operators, will trigger mandatory risk-based controls and customer verification. Alongside this, the regulator has signaled its intent to block high-risk offshore exchanges that refuse to comply with their standards, effectively securing the South Korean crypto market against threats posed by weaker regulations in other jurisdictions.

Whilst this presents a step up in regulatory oversight and compliance measures, these strict rules have paved the way for institutional entry into the crypto space. The FSC recently drafted rules allowing public companies to invest up to 5% of their equity in top cryptocurrencies - a move that was only possible once the basis for a ‘zero-tolerance’ AML environment was established.

For businesses operating in or with South Korea, the 2026 roadmap represents a significant increase in both operational complexity and compliance risk. For VASPs, the technical burden of reporting high-frequency, low-value transactions is immense. Coping with this will necessitate a shift toward more effective and efficient compliance tools capable of handling vast datasets without slowing down transaction speeds. For users, whilst everyone will enjoy a safer, more regulated market, they must also adjust to a loss of transaction privacy as all transactions are monitored.

Fortunately, Blockpass provides the ideal solution here. By pre-verifying users, companies don’t have to wait to on-board, and by giving users control over their own re-usable verified profiles, individuals can choose to interact with any entity in the Blockpass ecosystem instantly, without having to go through the verification process over and over. This cuts down significantly on costs and time and enables a secure marketplace, such as the one South Korea is creating, to function efficiently and smoothly.

The FSC’s task force aims to finalize these legal revisions by the first half of 2026. By moving toward a system of total monitoring, South Korea is setting a global precedent: for the crypto ecosystem to shed its reputation for illicit activity and gain institutional legitimacy, the era of anonymous, small-scale transfers must come to an end.