Travel Rule Between Domestic Exchanges Have Been Linked (Updated 2022.05.) 

[Executive Summary]  

A linkage between the two Travel Rule solutions VerifyVASP and CODE has made its debut on April 25th. This linkage enabled transaction of virtual assets between domestic exchanges, which had only been restrictively possible because every exchange had introduced its own Travel Rule solution. However, the overwhelming view is that it is still difficult to transact virtual asset from domestic exchange to foreign exchange.  

After the implementation of the Travel Rule, Korea’s representative Travel Rule solution VerifyVASP and CODE have been partly linked on April 25th, enabling deposit and withdrawal free from amount limit and identity confirmation between the four KRW market exchanges. However, in the case of deposit and withdrawal between domestic exchange and foreign exchange, it is criticized that the Whitelist strategy has been implemented as a temporary expedient instead of Travel Rule, causing inconvenience for its users. Unlike deposit and withdrawal between domestic exchanges, wallet registration is used to allow the transaction between domestic exchange and foreign exchange. 

Through in-app notice, Upbit has announced that it will apply ‘Account owner confirmation service’ for major foreign exchanges such as Binance. Other major foreign exchanges, such as Bithumb, Korbit, and Coinone only allow transfers to virtual asset addresses that are registered and have received confirmation.  

As a result, for Upbit, additional time will be consumed to confirm account identification and complete deposits. Bithumb users will have to register the address of virtual asset foreign wallet and receive screening if they wish to withdraw virtual asset to a foreign wallet address. A partaker of domestic exchange explained, “with the addition of anti-money laundering(AML) processes such as identification confirmation and explanatory procedures, transaction could take more time than before.”  

Specialists also criticized that Travel Rule cannot be fully applied domestically under the existing law. Jung Ji-yeol director of Probit’s AML headquarters (former president of AML Association) explained that “because the Act on Reporting and Using Specified Financial Transaction Information has poisonous clauses like Information Security Management System (ISMS) and real-name verified deposit and withdrawal account (real-name account), Travel Rule recommendations from OECD’s FATF (Financial Action Task Force) do not work in Korea.” However, in order to solve this problem, Ministry of Science and ICT (competent authority of ISMS) has announced an Advanced Notice. This notice notifies an Amendment enabling new entrepreneurs who wish to enter the virtual asset industry after March 31st to receive ISMS confirmation through Preliminary Confirmation Policy.  

Since withdrawing from domestic exchange to foreign exchange is still considered to be difficult and time consuming, Cha&Kwon Law Offices advise corporates to maintain possible transfer methods until further measures take place.