South Korea’s digital asset landscape is currently facing a massive regulatory crossroads. The Digital Asset eXchange Alliance (DAXA), which represents the nation’s heavy hitters like Upbit and Bithumb, has formally warned that proposed Anti-Money Laundering (AML) amendments could effectively paralyze the industry. At the heart of the debate is a new mandate that would require exchanges to flag every single overseas-linked transfer worth 10 million won (roughly $6,800) as a suspicious transaction.
The numbers behind this shift are staggering. DAXA estimates that if these rules take effect, suspicious transaction reports (STRs) from the top five exchanges would skyrocket from 63,000 cases annually to over 5.4 million. This 85-fold increase has raised serious questions about whether the Financial Intelligence Unit (FIU) actually has the manpower to process such a mountain of data, or if the rule simply creates an impossible compliance burden for local platforms.
The Operational Strain on South Korean VASPs
The industry isn’t just worried about the volume of paperwork; they are concerned about the “operational confusion” caused by blanket reporting. Under the current proposal, any transfer meeting the 10 million won threshold would be labeled “suspicious” regardless of the actual risk profile of the user. DAXA argues that this undermines the very logic of AML efforts, which are typically based on risk assessment rather than arbitrary flat-rate triggers.
Furthermore, the industry body pointed out that some of the new requirements—such as a mandate to verify the absolute accuracy of all customer information—go beyond what is established in the underlying Specific Financial Information Act. By adding these obligations through lower-level supervisory rules, the regulators are being accused of “rule-making by proxy,” adding heavy-handed requirements without the proper legislative debate.
Legal Showdowns: Exchanges vs. The Financial Intelligence Unit
This regulatory friction is playing out against a backdrop of intense legal battles. South Korean regulators haven’t been shy about swinging the hammer lately, but the courts are beginning to push back. Recently, Upbit (operated by Dunamu) won a significant first-instance court ruling that overturned a three-month business suspension. The regulator had initially penalized them for alleged lapses in customer due diligence, but the court saw things differently—though the FIU has already filed an appeal.
Other major players are in similar boats:
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Bithumb: Recently secured a court-ordered stay on a six-month business suspension, allowing them to continue operations while they fight allegations of dealing with unregistered foreign providers.
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Coinone: Currently challenging a massive 5.2 billion won fine and a three-month suspension tied to customer verification issues.
The Financial Services Commission (FSC) plans to finalize these new rules by July. If they move forward without concessions, the South Korean crypto market could transform from one of the world’s most vibrant hubs into one of the most bogged-down by administrative red tape. For now, the industry is holding its breath to see if the public notice period, which ends May 11, results in any meaningful compromise.
