A new era has dawned on the South Korean digital currency ecosystem. Starting March 25, all Korean exchanges now adhere to the Travel Rule, which imposes new restrictions on transfers and forces them to reinforce their anti-money laundering (AML) measures. DeFi and NFTs will take the biggest hit even as some in the local digital asset industry voice their opposition to the new rules.
The Travel Rule was introduced by the Financial Action Task Force (FATF), a global body that’s mandated with fighting money laundering. FATF’s guidelines require digital currency firms to collect and disclose the sender and receiver information above a certain threshold.
In South Korea, which recently elected a pro-Bitcoin presidential candidate, this threshold was set at KRW 1 million Korean ($821) on March 25, 2021. The government then gave virtual asset service providers (VASPs) a one-year period within which they must comply.
Korean VASPs have been scrambling to comply with the new regulations during the grace period. As with many other requirements, it’s been the Big Four exchanges that have managed to be the most compliant. However, even among these four, the implementation hasn’t been standard.
Upbit, Korea’s biggest exchange by a mile, has implemented its own home-grown VerifyVASP program. Starting March 25, the exchange will subject any deposits above $821 to the Travel Rule, although smaller deposits will not be affected. Its VerifyVASP program will allow Korean users to seamlessly transfer funds from its subsidiaries and affiliates in Thailand, Indonesia, and Singapore.
It will also allow users to send funds to and from exchanges such as Coinbase, BitMEX, Kraken, ByBit, Bittrex, Bitbank, and Gate.io.
Exchanges allowed for transfers to and from Upbit:
VerifyVASP integrators – GOPAX, Probit, and few small Korean exchanges.
Bithumb, CoinOne, Korbit – after Upbit integrates their TR solution "CODE".
Binance, BitMex, OKx, https://t.co/pCXvmrHz1W, FTX – allowed in the future
— Jun (@zunahn) March 22, 2022
The other three big exchanges—Bithumb, Korbit, and Coinone—have partnered and implemented their own system known as CODE to comply with the Travel Rule. This system is compatible with different exchanges, including Binance, Phemex, Coinlist Pro, and bitFlyer.
CODE and VerifyVASP are not compatible, at least until April 8.
Experts believe that this lack of a common standard will confuse many of the 5.5 million Korean digital currency investors.
“Skilled investors will understand what’s happening with each exchange, but there are a lot more who do not. At the end of the day, the investors take on the damage,” Paik Hoon-jong, the chief operating officer at Sandbank, a digital asset banking platform, told one news outlet.
The reception to the Travel Rule has varied within Korea. Some have criticized it and the way it was implemented, saying that investors will lose out.
“In a state where the infrastructure was not prepared, a regulatory body with low understanding was forced to push forward. It is expected that revisions will follow to an appropriate level with criticism from the Korean community,” Simon Kim, the CEO of Korean digital asset investment firm Hashed, which is under investigation by Korean tax authorities, told one outlet.
Others believe that the Travel Rule will legitimize the digital asset sector and be a catalyst for its mainstream appeal.
According to Forkast News, Hwang Suk-jin, a professor of information security at Dongguk University, drew parallels between the Travel Rule and the real-name financial system imposed in 1993 by the Korean government. At the time, the system was fiercely opposed, but in retrospect, it played a significant part in making South Korea the financial giant it is today.
“In 1993, Korea started the real-name financial system. It helped uncover the underground economy and effectively prevented slush funds or illegal funds from forming. Perhaps you can look at the travel rule as a crypto version of the real-name system,” he told the outlet.
“The travel rule will be the first step in protecting investors and in building a healthy virtual asset market,” he added.
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