Cross-border virtual asset transfers will now be reported to the Bank of Korea’s foreign exchange computer network and shared with relevant agencies including the National Tax Service, Korea Customs Service, the Financial Supervisory Service, and the Korea Financial Intelligence Unit (FIU). The measure aims to block the circumvention of foreign exchange regulations and illegal currency exchange using virtual assets.
South Korea’s Ministry of Economy and Finance announced on the 7th that it will issue a legislative notice for a partial amendment to the Enforcement Decree of the Foreign Exchange Transactions Act containing these provisions. As a follow-up to the Foreign Exchange Transactions Act revised in June, the amendment focuses on specifying matters delegated by the law and reducing blind spots in illegal foreign exchange transactions.
The amendment stipulates that the scope of the newly established “Virtual Asset Transfer Business” will include not only transfers between domestic virtual asset operators and overseas virtual asset operators, but also transfers between domestic operators and personal wallets. The key objective is to bring cross-border virtual asset movements that bypass traditional financial institutions into the authorities’ foreign exchange transaction management framework.
Virtual asset transfer operators must secure computer systems necessary for business operations and employ at least two professionals with either two or more years of foreign exchange business experience or completion of relevant training. After completing prior registration with the Minister of Economy and Finance, operators must report virtual asset transfer records to the Bank of Korea’s foreign exchange computer network. Information collected by the Bank of Korea will be shared with the National Tax Service, Korea Customs Service, the Financial Supervisory Service, and the FIU for use in investigating illegal foreign exchange transactions.
Significantly Stronger Sanctions for Currency Exchange Businesses
Entry requirements and sanction levels for currency exchange businesses will also be substantially raised. Unlike other non-bank foreign exchange business categories, currency exchange businesses currently have no meaningful entry requirements, leading to criticism that weak operators have proliferated and sanctions for violations are inadequate. Of the 1,346 currency exchange businesses that reported first-half results this year, 581 had no foreign currency purchase records at all.
The amendment requires that executives of currency exchange businesses not fall under disqualification criteria under the Act on Corporate Governance of Financial Companies, and introduces a new equity capital requirement. Equity capital must meet or exceed the amount set by the Minister of Economy and Finance, which will be announced at no less than 10 million won (approximately $7,500).
For serious violations such as voice phishing, illegal trade payment, or virtual asset-related illegal remittance, a “One-Strike-Out” system will be applied, allowing registration to be revoked for a single violation. The ceiling on penalty surcharges imposed in lieu of business suspension will also be raised to up to 100% of profits gained from the violation, strengthening sanctions from the current maximum of 70%. For violations warranting a four-month business suspension, the maximum penalty surcharge will increase from 70% to 100% of profits.
Reorganization of Fintech Foreign Exchange Operations
The fintech-based foreign exchange business framework will also be overhauled. The existing Small Amount Overseas Remittance Business and Other Specialized Foreign Exchange Business will be consolidated into the “Overseas Payment Settlement Business,” with business scope and registration requirements reorganized.
The Overseas Payment Settlement Business will consist of six categories: the Small Amount Overseas Remittance Business, plus the existing sub-categories of the Other Specialized Foreign Exchange Business—Electronic Payment Settlement Agency Business, Electronic Money Business, and Prepaid Business—with the addition of Overseas Payment Deposit Business and Overseas Electronic Bill Presentment and Payment Business. Definitions for the five categories other than Small Amount Overseas Remittance Business will apply mutatis mutandis from the Electronic Financial Transactions Act. A supervisory framework will also be established with the Financial Supervisory Service conducting examinations and the Financial Services Commission overseeing.
The transfer of foreign currency prepaid payment instruments to third parties, which has been operated through the financial regulatory sandbox, will also be institutionalized. After the Enforcement Decree is finalized, the Foreign Exchange Transactions Regulation will be amended to allow the transfer of foreign currency prepaid payment instruments to third parties within certain amount limits. This measure aims to incorporate the achievements of services operated through the financial sandbox, such as Travel Wallet, into the formal regulatory framework.
The Korea Customs Service’s authority to inspect foreign exchange transactions will also be partially expanded. Currently, the agency can inspect parties and related persons involved in import/export transactions or related service and capital transactions. Going forward, if violations are discovered during import/export transaction inspections, the agency will be able to extend inspections to parties and related persons of the relevant service and capital transactions. This measure aims to reduce administrative costs and inspection delays caused by inter-agency case transfers.
Additionally, the deadline for filing objections to foreign exchange soundness levies will be extended from 15 days to within 30 days, while the deadline for notifying processing results will be adjusted from 15 days to within 14 days. The duration of the foreign exchange soundness levy will also be set at 10 years.
Implementation Timeline
The Enforcement Decree amendment will undergo legislative notice until the 26th of this month to gather public comments. It will then proceed through regulatory review by the Office for Government Policy Coordination, review by the Ministry of Government Legislation, and vice-ministerial and cabinet meetings, with implementation scheduled for December 3 to coincide with the enforcement of the revised Foreign Exchange Transactions Act.
With this amendment, cross-border fund movements through virtual assets will effectively come under the surveillance of foreign exchange authorities. Virtual asset transactions that bypass financial institutions have long been identified as a blind spot in foreign exchange transaction management. The government plans to consolidate virtual asset transfer information in one place to track illegal foreign exchange transactions and currency exchange activities, while strengthening entry requirements and sanctions for currency exchange businesses to weed out weak operators.
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