South Korea's Financial Intelligence Unit (FIU) and four other government agencies attended the 34th 6th plenary meeting of the Financial Action Task Force (FATF) held May 15-19 at the OECD headquarters in Paris. Korea proposed expanding the travel rule application to small-amount virtual asset transactions and recommended restrictions on transactions with high-risk unregistered Virtual Asset Service Providers (VASPs). The proposals respond to increasing money laundering risks in cross-border digital asset transactions and criminal organizations' growing exploitation of offshore and unregistered VASPs.
The five Korean agencies — FIU, Ministry of Justice, Ministry of Foreign Affairs, Financial Supervisory Service, and Korea Institute of Finance — announced their participation on the 22nd.
Korea Proposes Travel Rule Expansion and VASP Transaction Restrictions
At the plenary, Korea emphasized that member countries need to apply the travel rule to both sending and receiving VASPs and expand mandatory application to small-amount transactions as money laundering risks using cross-border digital asset transactions expand. Korea proposed that countries consider strengthening customer due diligence requirements and implementing transaction restriction measures against high-risk unregistered VASPs, noting increased cases of criminal organizations exploiting offshore and unregistered VASPs. Korea also emphasized the importance of continuous monitoring and global cooperation to respond to emerging risks including stablecoins and DeFi (Decentralized Finance).
FIU Plans August Implementation of Revised Enforcement Ordinance
FIU previously pursued introduction of these regulations in the revised Special Financial Information Act enforcement ordinance scheduled for implementation in August. The revision expands travel rule application from transactions of 1 million won or above to include transactions below 1 million won, imposes anti-money laundering (AML) obligations on transfers to overseas exchanges, and places evaluation obligations on domestic operators regarding foreign operators' risk levels.
FATF Approves Reports on Digital Asset Compliance and DeFi Risks
FATF approved publication of a report analyzing each country's implementation status of AML requirements and supervision for digital assets and service providers. The report confirmed that FATF standard recommendation implementation by countries is generally slow regarding digital asset travel rule implementation, and substantial standard implementation is limited in some countries with large operator activity scales. FATF also approved a new targeted report on potential risks related to DeFi platform growth and money laundering.
Member countries expressed concern about insufficient standard implementation by countries, noting that digital assets continue to be exploited for large-scale fraud and financial crimes, these crimes combine with weapons of mass destruction proliferation risks, and artificial intelligence (AI) may further amplify these threats. Member countries argued for examination of strong standard implementation measures.
Director Lee Emphasizes Consistent Global Regulatory Framework
Director Lee Hyung-joo welcomed adoption of the DeFi-related target update and the report analyzing emerging risks in the digital asset ecosystem and global response gaps. However, Lee emphasized that "timely establishment of a consistent and effective global regulatory system is important, as regulatory arbitrage can occur and weaken AML effectiveness because licensing and registration requirements for VASPs, supervision methods, and offshore operator response methods differ by jurisdiction."
FATF Approves Private Sector Partnership Framework and Cross-Border Payment Guidance
FATF emphasized partnership with the private sector. The plenary assessed that crime scale and complexity are increasing as digitalization expands and cross-border transaction fragmentation intensifies, and emphasized that public-private cooperation and expanded information sharing are essential for effective response. The plenary approved a global overview report on public-private cooperation and data protection frameworks. This report will be published in July to introduce various information sharing models worldwide and present financial information sharing methods applicable to crime response.
The plenary approved public consultation on new guidance to support implementation of Recommendation 16, the enhanced standard on cross-border payment transparency. FIU explained that this guidance is expected to help governments and financial institutions strengthen payment information transparency to effectively respond to money laundering, terrorist financing, proliferation financing, and fraud crimes. Korea and other member countries welcomed completion of the report to strengthen public-private information sharing systems for responding to these crimes, and expected that international standard (R.16) improvement efforts to enhance cross-border payment transparency for fraud crime response will greatly contribute to capacity building by countries for fraud crime response.
FAQ
What did Korea propose at the FATF plenary held May 15-19?
Korea proposed expanding the travel rule application to small-amount virtual asset transactions and recommended restrictions on transactions with high-risk unregistered VASPs. Korea emphasized that member countries need to apply the travel rule to both sending and receiving VASPs and expand mandatory application to small-amount transactions.
When does FIU plan to implement the revised Special Financial Information Act enforcement ordinance?
FIU plans to implement the revised enforcement ordinance in August. The revision expands travel rule application from transactions of 1 million won or above to include transactions below 1 million won and imposes AML obligations on transfers to overseas exchanges.
What reports did FATF approve at the plenary?
FATF approved a report analyzing each country's implementation status of AML requirements and supervision for digital assets and service providers. FATF also approved a new targeted report on potential risks related to DeFi platform growth and money laundering, and approved a global overview report on public-private cooperation and data protection frameworks.
