Crypto transfers to private wallets to fall under foreign exchange reporting

Virtual asset transfers between domestic crypto businesses and private wallets will now be subject to mandatory reporting through the Bank of Korea's foreign exchange information network.

In setting out the detailed scope of a cross-border virtual asset transfer monitoring framework it had earlier signaled through legislation, the government extended coverage beyond transfers between domestic and overseas businesses to include those routed through private wallets.

The Ministry of Economy and Finance said Wednesday it would pre-announce a partial amendment to the enforcement decree of the Foreign Exchange Transactions Act containing these provisions. The measure is designed to flesh out details of the Foreign Exchange Transactions Act revised in June and to close blind spots in illegal foreign exchange transactions, with implementation set to coincide with the revised law's effective date of Dec. 3.

Virtual asset transfer service providers will be required to report transfer records to the Bank of Korea's foreign exchange information network, which serves as the central repository for foreign exchange data. The government plans to share the data with the National Tax Service, Korea Customs Service, Financial Supervisory Service and Korea Financial Intelligence Unit to prevent circumvention of foreign exchange regulations and illegal transactions involving virtual assets.

Registration requirements and procedures have also been established. To register as a virtual asset transfer business, a company must have the necessary IT infrastructure and employ at least two staff members with either two or more years of experience in foreign exchange operations or relevant training. Requirements for registered particulars and change notifications are also specified.

Entry requirements and sanctions for money-changing businesses will be tightened. According to the ministry, 581 of the 1,346 money changers that reported first-half earnings this year had recorded no foreign currency purchase transactions. The changes reflect criticism that the absence of entry requirements — unlike other non-bank financial sectors — has allowed poorly run operators to proliferate, and that penalty surcharges have been too low relative to violations to serve as an effective deterrent.

Under the revised rules, executives of money-changing businesses will be screened for disqualifying factors at the time of registration, and a new minimum equity capital requirement will apply. The required equity capital will be at least 10 million won ($7,360), with the exact threshold to be determined by the minister of economy and finance.

Violations involving voice phishing, illegal trade payments and hawala-style remittances linked to virtual assets will trigger automatic license revocation under a one-strike-out rule. The ceiling on penalty surcharges imposed in lieu of business suspension will also be raised. The current caps — set at 20, 40, 50 and 70 percent of illicit gains for suspension periods of one, two, three and four months, respectively — will be raised to 40, 60, 80 and 100 percent.

The regulatory framework for fintech-based overseas remittance and payment businesses will also be overhauled. Small-sum overseas remittance services and other specialized foreign exchange businesses will be consolidated into a new category called overseas payment and settlement businesses, and the sector will be reorganized into six business types by adding overseas payment deposit services and overseas electronic billing and payment services to the existing four categories. Supervisory responsibilities will be restructured, with the Financial Supervisory Service taking over inspection duties and the Financial Services Commission assuming oversight functions.

For prepaid payment businesses, the ministry plans to further amend foreign exchange transaction regulations after the decree is finalized to allow the transfer of foreign-currency prepaid payment instruments to third parties within a set monetary limit. The move is intended to institutionalize outcomes from financial regulatory sandbox operations, including services such as Travel Wallet.

The Korea Customs Service's authority to conduct foreign exchange transaction inspections will also be partially expanded. The agency will be allowed to continue inspections into violations involving service or capital transactions discovered in the course of examining import-export transactions, reducing the administrative costs and delays associated with inter-agency referrals.

For the foreign exchange soundness levy, the deadline to file an objection will be extended from 15 days to 30 days, while the deadline for notifying applicants of the outcome will be adjusted from 15 days to 14 days. The levy's sunset period will be set at 10 years.

The public comment period runs through Oct. 26. The ministry plans to proceed with the amendment after gathering public input and completing regulatory and legal reviews, as well as deliberations at the vice ministerial and Cabinet meetings.