Regulatory Clarity Trumps Stricter Travel Rule Enforcement

As global regulators continue tightening oversight of digital asset transactions, the debate around the Travel Rule is shifting. The issue has shifted from the need for stronger anti-money laundering controls to if those controls are being implemented with sufficient clarity and practicality.

This article explores how, based on South Korea’s experiences, unclear regulatory expectations can create significant operational and legal challenges for virtual asset service providers, and why regulatory clarity may ultimately matter more than stricter enforcement alone.

South Korea Shines Light on the Importance of Regulatory Clarity 

Developments in South Korea have highlighted a growing issue facing the digital asset industry worldwide, that is unclear regulatory expectations can create as much risk as weak enforcement.

According to a survey conducted by South Korea’s Financial Intelligence Unit (FIU) in the second half of 2025, only 15.6 trillion won of the country’s 107.3 trillion won exchanged via external digital asset transfers fell within the statistical scope of its current Travel Rule framework. 

In other words, only around 15% of transfers were clearly categorised under the regulation. This suggests that although the regulations are in place, its boundaries remain difficult to interpret.

South Korea’s Expanding Travel Rule Debate

South Korean regulators are currently considering extending Travel Rule verification requirements to transactions below the existing 1 million won threshold. From a policy perspective, this aligns with broader international efforts to strengthen anti-money laundering (AML) standards in crypto markets.

However, regulatory expansion without operational clarity introduces significant compliance challenges for virtual asset service providers (VASPs).

The issue became particularly visible in the dispute between South Korea’s FIU and Upbit’s operator,Dunamu. Authorities imposed a three-month partial business suspension and a 35.2 billion won penalty, alleging that the company facilitated approximately 45,000 transactions involving 19 undeclared overseas operators.

While obligations for transactions above 1 million won are clearly established under the Act on Reporting and Use of Specific Financial Transaction Information, the dispute focused heavily on how AML obligations should apply to transactions below that threshold.

In April 2026, the Seoul Administrative Court ruled in favour of Dunamu in the first instance. The court found that regulators had outlined broad prohibitions without providing sufficiently clear implementation standards or operational guidance. As a result, businesses could not reasonably predict what level of compliance was expected.

The ruling has broader implications for the global crypto industry. When regulatory liability depends heavily on interpretation rather than clearly defined standards, businesses face uncertainty over whether their compliance measures are sufficient.

The Structural Challenge of Self-hosted Wallets

One of the most difficult areas for Travel Rule compliance remains transactions involving self-hosted wallets.

Unlike transfers between regulated VASPs, self-hosted wallet transactions do not involve a counterparty institution capable of receiving or verifying Travel Rule data. The traditional Travel Rule model is based on the exchange of information between regulated entities. Applying the exact same obligations to wallet-to-wallet transfers creates structural and technical limitations.

This creates a critical challenge for regulators. If compliance obligations exceed what is technically achievable, enforcement becomes difficult in practice and introduces unnecessary legal uncertainty for operators.

The FATF Emphasises Practical Implementation

The Financial Action Task Force (FATF) has repeatedly emphasised technological neutrality and the principle of “same activity, same risk, same rules” in digital asset regulation. Rather than mandating specific technologies, the FATF focuses on ensuring consistent compliance outcomes across evolving infrastructures.

In its June 2025 publication, Best Practices on Travel Rule Supervision, the FATF stressed that successful implementation depends heavily on “interconnectivity” and “practical implementation.”

The document also recognised two major industry challenges: Firstly, the sunrise issue (where some jurisdictions or counterparties are Travel Rule compliant while others are not) and technical incompatibility between different Travel Rule solutions and compliance systems.

To address these issues, the FATF recommends a Risk-Based Approach (RBA), particularly when counterparties are unable to receive or process required information.

This is an important distinction. The FATF supports strong AML standards, but also acknowledges that implementation must remain technically feasible and operationally practical.

Regulatory Clarity Creates Competitive Advantage

Several jurisdictions already demonstrate that stricter regulation does not necessarily create uncertainty.

The EU’s Transfer of Funds Regulation (TFR) applies Travel Rule requirements to all digital asset transfers, regardless of transaction size. However, the EU framework also clearly defines compliance obligations and implementation standards within legislation itself.

Similarly, Singapore’s Monetary Authority of Singapore (MAS) applies differentiated information requirements using a clearly defined S$1,500 threshold model.

These jurisdictions may impose broader obligations than South Korea, but they also provide clarity and predictability for businesses. This predictability is valuable for business development as companies naturally gravitate toward jurisdictions where compliance expectations are transparent and operationally achievable.

Access 21 Analytics’ global Travel Rule summaries.

The Cost of Regulatory Ambiguity

When compliance boundaries remain unclear, businesses are forced into defensive decision-making.

Instead of focusing on innovation, product development, or interoperability, companies prioritise minimising regulatory exposure. Over time, this slows industry growth and discourages investment.

This issue extends beyond domestic markets. The digital asset ecosystem is increasingly global, and operators can relocate activities to jurisdictions with clearer frameworks. Regulatory ambiguity therefore becomes both a compliance issue and a competitiveness issue.

What the Industry Needs Next

As regulators consider expanding Travel Rule requirements, three areas require greater attention:

1. Clear Differentiation by Transaction Type

Compliance obligations should vary depending on whether transactions occur between regulated VASPs, with self-hosted wallets, or with overseas counterparties. A single standard cannot realistically apply to every scenario.

2. Recognition of Technical Feasibility

Where no counterparty institution exists, regulators should allow alternative controls such as enhanced due diligence (EDD), risk-based approaches, or additional transaction monitoring measures.

This aligns with FATF guidance and reflects operational reality.

3. Advance Regulatory Guidance

Changes in interpretation should be accompanied by implementation guidance, grace periods, and advance notification mechanisms. Businesses need time to adapt systems, policies, and operational processes.

Clear Standards Matter More Than Broad Rules

The Travel Rule will continue expanding globally. Lower transaction thresholds and broader reporting obligations are increasingly becoming the standard regulatory direction. But effective regulation is more than expanding obligations, it is also about ensuring those obligations can be implemented consistently, fairly, and practically.

For the crypto ecosystem regulatory clarity has become a strategic factor influencing innovation, interoperability, and long-term competitiveness.

Source: 핀테크투데이 ([Research Fellow Lee Seong-mi] The Essence of the Travel Rule Debate – Clarity, Not Strictness of Regulation, Determines National Competitiveness)