[ND Analysis] "5.4 Million Reports Annually"... South Korean Crypto Industry Officially Opposes Financial Authorities' AML Strengthening Plan

On Monday, May 4, 2026, the Digital Asset eXchange Alliance (DAXA), representing South Korea's major virtual asset exchanges, filed a formal objection against a new government regulation mandating the reporting of all transactions over 10 million won. This regulatory conflict is expected to be a significant turning point for the domestic digital asset sector, which is simultaneously experiencing a sharp decline in trading volume and changes in corporate investment policies.

The industry argues that the proposed amendment is overly broad and imposes an excessive operational burden on exchanges. There is a prevailing concern that additional compliance costs, especially in a rapidly cooling market, could hinder the industry's resilience and cause inconvenience to users.

In an official opinion letter submitted to financial authorities, DAXA emphasized that the provision requiring the reporting of all virtual asset transactions over 10 million won (approximately $6,802) would have more side effects than benefits. The industry warned that if the regulation is implemented, the administrative workload for exchanges would increase to an unmanageable level.

This amendment is an example of introducing excessive regulation that exceeds international standards, and it carries a high risk of ultimately driving domestic users to overseas platforms or unregulated exchanges with insufficient protection systems.

According to DAXA's analysis, if the 10 million won reporting threshold is applied, the number of suspicious transaction reports from South Korea's five major exchanges is estimated to exceed 5.4 million per year. This figure is evaluated as a level that could cause a serious overload not only for the exchanges but also for the operational capacity of the Korea Financial Intelligence Unit (KoFIU), which must receive and analyze the reports.

The Financial Authorities' Justification: Establishing Modern AML and Cross-Border Transfer Systems

The Financial Services Commission (FSC) and KoFIU maintain that this measure is essential to respond to modern transnational financial crimes and to close loopholes in existing regulations. 2026 marks the 25th anniversary of the establishment of the domestic financial information system, and the authorities are making a strategic move to strengthen virtual asset transfer regulations to the level of traditional financial systems starting from this point.

• Establishment and implementation of a dedicated regulatory framework for cross-border virtual asset transfers
• Comprehensive modernization of the financial monitoring network to respond to modern money laundering techniques
• Supplementing detailed enforcement decrees to support the effectiveness of the Virtual Asset User Protection Act enacted in 2023
• Establishing strict domestic implementation standards that exceed the recommendations of the Financial Action Task Force (FATF)

Currently, the South Korean virtual asset market is passing through an unprecedented trading slump. Between December 6, 2025, and January 5, 2026, the total trading volume of major won-based exchanges was tallied at approximately 77.6 trillion won (about $57.5 billion), a sharp drop of about 80% compared to the same period last year. High-intensity AML regulations introduced during such a market cooling period are acting as a fatal additional cost burden on the industry.

While the government sought to revitalize the market by lifting a nine-year ban on corporate investment in virtual assets in February 2026, concerns have been raised that this AML strengthening plan may conflict with that policy direction. Along with safeguards such as phased order execution and order size limits prepared for corporate participants, the strengthened reporting obligations could result in raising the entry barriers for institutional investors again.

Industry experts point out that this regulation excessively exceeds FATF international standards and are wary of the weakening of competitiveness due to over-regulation. Analysis suggests that new reporting obligations introduced even before the Virtual Asset User Protection Act of 2023 has settled in the market could hinder the industry's innovation momentum and lead to the global isolation of the Korean market.

Whether the Financial Services Commission will revise the enforcement decree by accepting DAXA's opposing views is expected to be a key variable determining the market's direction. Regulatory uncertainty within the South Korean virtual asset market is likely to persist for the time being until the specific implementation schedule for the cross-border transfer framework and the final reporting standards are confirmed.