South Korea closes crypto travel rule loophole exploited by 216 split transfers

South Korea’s Cabinet approved amendments on Aug. 11 that eliminate the 1 million won (roughly $700) threshold for information-sharing between registered domestic crypto exchanges, closing a gap regulators say let users dodge scrutiny by splitting large transfers into smaller pieces.

The move closes a loophole regulators believe could be exploited by users splitting large transfers into smaller amounts to avoid scrutiny.

The Financial Services Commission (FSC) said the revised framework is intended to prevent regulatory evasion through “split transfers” and make crypto transactions more transparent. The Crypto travel rule expansion will also place additional responsibilities on receiving VASPs, which must secure transaction information supplied by sending platforms.

The decision follows months of regulatory work and comes as South Korean authorities intensify oversight of virtual assets, cross-border transfers and crypto-related money laundering risks.

South Korea removes the ₩1M floor

Until the new provisions take effect, South Korea’s existing Crypto travel rule applies to transfers between domestic VASPs worth at least 1 million won. The sending platform must provide information about the originator and beneficiary to the receiving VASP.

The Cabinet-approved amendments remove that floor entirely.

Once effective, every covered transfer between registered domestic VASPs will fall within the information-sharing regime, including transactions below 1 million won. The receiving exchange will also have a specific duty to obtain and maintain the relevant information. If information is missing, it can request the necessary details or reject the transaction.

Regulators say the change is aimed directly at transaction splitting. The FSC cited a suspected case in which roughly 200 million won was used to buy USDT before being withdrawn in 216 separate transactions, each below 1 million won.

According to the regulator, the pattern raised suspicions that the funds were deliberately divided to avoid the existing threshold.

The scale of the potential loophole is significant. An FSC proposal earlier this year noted that approximately 60% of transfers between domestic VASPs in the second half of 2025 were below 1 million won. Authorities therefore argued that extending the Crypto travel rule to smaller transfers would substantially improve the visibility of crypto flows.

Overseas exchanges and personal wallets face tougher scrutiny

The amendments also introduce a risk-based system for transfers between Korean VASPs and overseas virtual asset platforms or personal wallets.

Low-risk transfers involving overseas VASPs can remain permissible. For other overseas exchanges and personal wallets, transactions will generally be allowed only where the sender and recipient are the same person or entity. High-risk transactions can be prohibited.

Korean VASPs will also have to establish internal suspicious-transaction monitoring systems for transfers of 10 million won or more involving overseas VASPs or personal wallets.

That is a notable change from the earlier proposal. The March draft had contemplated reporting such transactions to KoFIU regardless of their risk level. The final version instead requires VASPs to maintain their own monitoring framework, giving exchanges greater responsibility for identifying potentially suspicious activity.

The regulator’s concern is clear: overseas exchanges and private wallets can create additional pathways for funds to move beyond the reach of domestic AML controls.

KoFIU Commissioner Lee Hyung Ju said in February that South Korea needed to strengthen its AML response to emerging forms of financial crime, particularly those involving transborder activity. He also identified stronger virtual-asset AML controls as one of KoFIU’s central policy priorities for 2026.

Korea sets a broader compliance benchmark

South Korea’s decision puts it among the jurisdictions pursuing a particularly broad application of the Crypto travel rule.

The country was already an early adopter of the FATF-inspired framework. KoFIU says Korea introduced its VASP Travel Rule in 2021, requiring crypto businesses to transmit and retain originator and beneficiary information.

The new zero-threshold approach goes further by bringing low-value domestic transfers into the same information-sharing framework.

For international exchanges, however, South Korea is not imposing a blanket ban. Instead, the new rules rely on risk classification, counterparty identity and transaction monitoring.

That distinction matters for the global crypto industry because compliance requirements increasingly vary between jurisdictions. Exchanges operating across borders must therefore maintain systems capable of identifying counterparties, assessing risk and preserving transaction information under different regulatory regimes.

South Korea’s latest move also reflects the broader international push to make crypto transfers more traceable and harder to use for laundering illicit proceeds.

When will the new rules take effect?

Despite being approved on Aug. 11, the expanded transfer requirements will not begin immediately.

The FSC said the provisions covering VASP registration and certain sanctions-related measures will take effect on Aug. 20, 2026. The amendments governing virtual asset transfers, including the removal of the 1 million won threshold, will take effect six months after promulgation.

That means exchanges have a preparation window to upgrade compliance systems, transaction-monitoring infrastructure and information-sharing procedures before the new obligations become enforceable.

Existing VASPs will also receive a one-year grace period for certain requirements involving debt ratios, staffing, computer infrastructure and internal controls.

The Crypto travel rule overhaul therefore represents more than a simple threshold change. It shifts South Korea toward a system in which transaction size is no longer enough to determine whether domestic crypto transfers receive regulatory scrutiny.

For Korean exchanges and their customers, the message is increasingly straightforward: splitting a crypto transfer into smaller amounts will no longer provide a way around the information-sharing rules once the new provisions take effect.

And for the wider digital-asset industry, South Korea is sending another signal that AML compliance is moving from threshold-based monitoring toward comprehensive transaction traceability.