What to know:
- South Korea’s Travel Rule plan would apply full checks to all crypto transfers now.
- Crypto firms warn stricter verification may delay withdrawals and raise user losses.
- New transfer rules could disrupt exchanges and complicate cross-border transactions.
South Korea’s plan to tighten checks on crypto transfers has raised concern among local digital asset firms. Regulators want to remove the current 1 million won threshold and apply the Travel Rule to every virtual asset transaction under the proposal.
Under the proposal, both the sender and receiver must complete full verification before a transfer is processed. Companies say this could slow deposits and withdrawals, while users may face losses if prices move during delays.
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Travel Rule Expansion Draws Industry Opposition
As per a local report, the plan would amend the enforcement decree of the Act on Reporting and Use of Specific Financial Transaction Information. According to the FSC and FIU, the change will enhance the regulation of virtual assets.
The proposal has been opposed by 27 local companies through the Digital Asset Exchange Association. According to the group, the introduction of more stringent regulations on crypto transfer would interrupt the exchange operations and would shift the financial risk to the average users.
Industry players say the main problem is the verification process between platforms. The sending and receiving exchanges would have to verify user information before permitting crypto transfers to proceed.
Exchanges should also decline transactions whose information is not fully available. Firms claim that it is difficult since blockchain systems are not easily able to support the rejection of a transaction once it has been sent.
Cross-Border Crypto Transfers Face New Risks
Subsequently, platforms might have to adopt the methods of return processes rather than outright rejection. This may take some time, and fluctuations in prices during the time may result in users incurring losses.
Companies also caution that responsibility can be unclear when conflicts arise. If funds are delayed or returned late, users and exchanges may disagree over who should cover the impact.
Cross-border activity could create further problems for crypto transfers. Overseas exchanges may refuse to share data or follow South Korean standards because of different regulations and privacy requirements.
According to an industry official, even in the present circumstances, foreign cooperation is not likely to happen. This may lead to slower international transactions, or even failures, in case the platforms are unable to authenticate the necessary information.
Regulators Defend Plan Amid Market Weakness
Regulators justify the plan as being a part of broader anti-money laundering initiatives. The Financial Intelligence Unit plans to meet local exchanges after May 11 to discuss industry concerns.
An official stated that the agency would directly communicate with exchanges to clear up misunderstandings. The FIU also indicated that it would like to come up with rules that companies can apply in practice.
The debate comes as South Korea’s crypto market shows weaker activity. According to the Bank of Korea data, total holdings have decreased to 60.6 trillion won, with trading volumes and exchange deposits decreasing.
The demand for stablecoins has been growing. This implies that some investors are shifting to safer digital assets as there is increased uncertainty in the market.
Industry firms say tougher rules could add pressure to a slowing sector. They suggest that crypto transfers must be better supervised, although the system must not subject users to delays, disputes, or losses.
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