I. KOFIU ANNOUNCES 2026 KEY AML PRIORITIES
On February 5, 2026, the Korea Financial Intelligence Unit (“KoFIU”) convened the AML/CFT Policy Advisory Committee to discuss and announce its Key AML Priorities for 2026..
* Attorney Lee Jungmyung of Bae, Kim & Lee LLC has been newly appointed as a member of the Advisory Committee
KoFIU has identified four priority initiatives for 2026: (i) strengthening its capacity to respond to serious crimes affecting the public and transnational crimes; (ii) enhancing the anti–money laundering framework related to virtual assets; (iii) reviewing the AML capabilities of financial institutions; and (iv) improving alignment with global standards. In particular, substantial changes are anticipated in connection with the initiative to enhance the virtual-asset related AML framework.
In this newsletter, we summarize the key measures KoFIU has outlined to strengthen the virtual-asset AML framework and consider the main implications going forward.
II. KEY MEASURES TO ENHANCE THE VIRTUAL-ASSET AML FRAMEWORK
1. Expanding the Travel Rule and Strengthening Monitoring of Transactions
1) Improving Travel Rule for Domestic Exchange-to-Exchange Transfers
Under the current Act on Reporting and Using Specified Financial Transaction Information (the “Financial Transaction Reports Act”) and the enforcement decree and regulations promulgated thereunder, sender and receiver information must be provided for virtual-asset transfers of KRW 1 million or more conducted between domestic virtual asset service providers (“VASPs”), with the primary obligation to provide such information being imposed on the sending exchange. However, as transaction types are expected to diversify—driven by developments such as the prospective institutionalization of stablecoins and the potential expansion of corporate participation in virtual-asset transactions—there is an increasing need to establish a comprehensive monitoring framework for transaction flows.
Accordingly, the Travel Rule will be expanded to cover small-value transfers below KRW 1 million, effectively extending the obligation to provide information to virtually all virtual-asset transfer transactions between domestic exchanges. This measure is intended to mitigate the risk of money laundering evasion through the use of small, fragmented transactions.
In addition, while the existing framework places the main information-provision obligation on the sending exchange, the proposed measures would newly impose information-collection obligations on the receiving exchange. Specifically, the receiving exchange would be required to request sender information and to reject the transaction if such information is not provided. By imposing information-verification responsibilities on both the sending and receiving sides, these measures are intended to enhance the accuracy and completeness of transmitted information and, ultimately, strengthen monitoring of domestic virtual-asset transfer activity.
2) Regulation of Transfers Between Domestic and Overseas Exchanges and Private Wallets
Under the proposed measures, transfers between domestic exchanges and overseas exchanges or private (unhosted) wallets will, going forward, be permitted only on a limited basis. In particular, overseas exchanges will be subject to differentiated requirements depending on their risk classification.
Specifically, (i) for low-risk overseas exchanges, virtual-asset transfers will generally be permitted, and transfers may be conducted without requiring the sender and receiver to be the same person; (ii) for other overseas exchanges or private wallets, transfers will be permitted only where the sender and receiver are the same person. This reflects the authorities’ view that transfers involving overseas exchanges or private wallets are, by their nature, higher-risk transactions, requiring VASPs to implement appropriate risk-mitigation measures (e.g., transaction limits and enhanced customer due diligence); and (iii) transfers involving high-risk overseas exchanges will be prohibited in full.
In addition, for high-value transfers, regardless of risk classification, VASPs will be subject to suspicious transaction reporting (“STR”) obligations, as well as enhanced monitoring and recordkeeping requirements.
Separately, acknowledging the practical constraints on monitoring transfers conducted between overseas exchanges and/or private wallets that do not pass through a domestic exchange, KoFIU indicates that it will strengthen enforcement through closer coordination with law enforcement authorities, including enhanced detection efforts and investigative collaboration.
2. Enhancing the AML Framework for Stablecoins
At present, there is no separate domestic regulatory framework specifically addressing stablecoins, and stablecoins issued offshore are traded on Korean exchanges in the same manner as other virtual assets. However, if stablecoins become widely used as a means of payment and fund transfer, they may give rise to AML risks that differ in nature from those associated with other virtual assets. Against this backdrop, KoFIU appears to be seeking to establish a comprehensive AML framework in parallel with the anticipated institutionalization of stablecoins in Korea.
KoFIU previously commissioned the Korea Institute of Finance to conduct a research project entitled “Study on Amendments to the Financial Transaction Reports Act to Improve the Virtual-Asset AML Framework” during the period from September to December 2025. Building on the research conduct in that project, KoFIU plans to develop AML measures for areas in the stablecoin issuance and circulation lifecycle that are not currently captured by existing AML controls.
1) Issue and Redemption of Stablecoins
In practice, a stablecoin issuer will issue and redeem stablecoins either directly to customers or through distributors. Under the proposed framework, the issuer would be required to fully comply with the baseline AML obligations applicable to “financial companies” under the Financial Transaction Reports Act, including:
• customer due diligence (“CDD”): verifying customer identity and identifying beneficial owners at the time of issuance and redemption;
• suspicious transaction reporting (“STR”): reporting to KoFIU upon detecting potentially suspicious transactions indicative of money laundering; and
• internal controls: establishing and operating an AML compliance framework, including a dedicated AML function, employee training, and risk assessments.
In addition, the measures contemplate mandating that stablecoins embed freeze and burn mechanisms by design. The stated policy objective is to ensure that, where stablecoins are suspected of being used for money laundering, the relevant tokens can be promptly frozen to prevent further transfer of potential criminal proceeds. This requirement is expected to be codified alongside the stablecoin regulatory framework currently under legislative consideration. Moreover, once a “suspicious account suspension” regime is introduced, financial supervisory authorities may ultimately be vested with direct authority to freeze stablecoins.
2) Distribution and Transfer of Stablecoins
Distributors are expected to be brought within the scope of “financial companies” subject to AML obligations under the Financial Transaction Reports Act. At present, stablecoins are generally used through two channels: (i) via regulated entities—such as exchanges and wallet service providers—that are already covered as “financial companies” under the Financial Transaction Reports Act (the regulated channel); and (ii) via private wallets or overseas service providers (the unregulated channel).
KoFIU views transfers involving the unregulated channel—particularly stablecoin transactions with private (unhosted) wallets and overseas providers—as a monitoring blind spot and a potential gateway for money laundering. Accordingly, KoFIU plans to require risk-based mitigation measures for such transactions, including enhanced due diligence (“EDD”) procedures.
These measures are expected to be pursued initially through the expansion of the virtual-asset Travel Rule via amendments to the Enforcement Decree of the Financial Transaction Reports Act, and implemented together with the restrictions on transfers between domestic and overseas exchanges and private wallets discussed above.
3. Inducing Improvement to Management of VASPs and Imposing Strict Sanctions
Since a significant number of VASPs, including crypto-to-crypto exchanges and custody providers, continue to operate at a loss, there are concerns as to whether such VASPs have sufficient baseline capacity to implement effective AML controls, especially when building and operating an AML framework requires substantial human and financial resources. The supervisory authorities have indicated that even the five largest KRW-crypto exchanges require further enhancement of their AML capabilities, and that the need is even more acute for smaller, financially constrained VASPs.
Against this backdrop, KoFIU plans in 2026 to conduct on-site inspections of approximately five to seven small VASPs that have not previously been subject to inspections or reviews, to assess their level of compliance with the Financial Transaction Reports Act and related regulations. For entities identified as financially weak, KoFIU also intends to review financial improvement plans, including measures to address capital impairment.
In addition, a recent amendment to the Financial Transaction Reports Act establishing an explicit legal basis for financial soundness assessments is expected, once it takes effect, to allow supervisory authorities to limit new registrations and registration renewals for financially weak VASPs. VASPs with weak financial profiles should therefore act promptly to implement adequate remedial measures.
It is also worth noting that post-examination follow-up measures for Coinone, Streami, and Bithumb, for which sanctions have not yet been finalized, are expected to be completed in the first half of 2026. KoFIU further indicates that it will not only impose sanctions for legal and regulatory violations in accordance with strict standards, but will also seek to prevent recurrence by periodically requesting and verifying rectification plans and implementation progress in respect of issues identified.
III. CONCLUSION
The proposed measures signal a broad-based strengthening of the existing AML regulatory framework. In preparation, virtual-asset exchanges should prioritize upgrading their systems and procedures to accommodate the expanded application of the Travel Rule. Other VASP types should likewise consider improving their financial condition in anticipation of on-site inspections in 2026, and undertaking internal compliance reviews or seek advisory service to adequately comply with the Financial Transaction Reports Act and the decree and regulations promulgated thereunder.
In addition, stablecoin issuers and overseas VASPs should be advised that Korea’s AML requirements are tightening, and that these initiatives are expected to progress in parallel with forthcoming digital-asset legislation. A cautious, compliance-focused strategy will therefore be essential for conducting business in Korea.
Bae, Kim & Lee LLC remains committed to standing by our clients with the highest level of expertise and dedication.
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[Korean version]
