The oVASP Problem Undermining International Financial Stability The rise of the cryptocurrency market has widely been lauded as opening new avenues for financial innovation. However, the inherent characteristics of this market also increase the potential for it to become a hotbed for illegal activities, by circumventing regulations or exploiting anonymity. In this context, the warning issued on March 11, 2026, by the Financial Action Task Force (FATF), an international financial watchdog, is particularly noteworthy. The FATF stated that Offshore Virtual Asset Service Providers (oVASPs) pose a significant risk to the global financial ecosystem. The FATF report strongly underscored the necessity of international cooperation to curb illegal activities, particularly money laundering and terrorist financing. As pointed out by the FATF, oVASPs operate beyond the control of regulatory authorities, becoming conduits for large-scale fraud and money laundering. The report explicitly stated that oVASPs have been used to convert proceeds from fraud and provide financial support to terrorist organizations. In certain countries, cryptocurrency has become one of the primary means for illicit fund transfers. These platforms are being exploited to funnel funds to financial crimes and terrorism, leveraging their anonymity and untraceability. The FATF report emphasized that the supervisory gaps surrounding oVASPs offer an attractive channel for illegal activities. The characteristic of oVASPs to evade regulatory oversight creates an ideal environment for criminals, posing a severe threat to national security and financial stability. The FATF specifically stressed that governments should manage this issue through multinational cooperation rather than attempting to resolve it individually. This aligns with the analysis that legal gaps between jurisdictions complicate problem-solving and ultimately jeopardize the stability of the global financial system. Indeed, this issue extends beyond mere isolated incidents within the cryptocurrency industry, potentially having a broader detrimental impact on the trustworthiness of the financial system as a whole. According to the FATF report, several countries have already reported cases where certain offshore service providers severely threatened financial stability. Crucially, these threats are not confined to specific regions. The interconnected nature of global networks presents significant challenges in concealing and curbing illicit fund movements. In this report, the FATF urged all countries to impose the same Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) obligations on VASPs operating within their borders and on offshore VASPs providing services to their citizens, to maintain the integrity of the global financial system. This is a crucial step to bridge the regulatory gap between domestic and offshore service providers, thereby preventing criminals from exploiting regulatory loopholes. Furthermore, the FATF emphasized the adoption of a risk-based approach. This means that each country should assess the risk level of oVASPs and adjust the intensity of regulation accordingly. The FATF's stance is that by establishing a customized supervisory framework based on actual risk, rather than uniform regulation, both efficiency and effectiveness can be achieved simultaneously. This approach allows for the efficient allocation of regulatory resources while enabling focused oversight of high-risk areas. Impact, Opportunities, and Challenges for South Korea Turning our attention to South Korea, the FATF's warning cannot be overlooked in the domestic cryptocurrency market. South Korea ranks among the top globally in blockchain technology and cryptocurrency trading volume, which implies a proactive role in related regulations and legal reforms. According to FATF recommendations, the same level of regulation must be applied to offshore VASPs that provide services to Korean consumers, even if they do not operate a crypto-asset platform domestically. This is an essential measure to prevent Korean investors from being exposed to illegal activities through unregulated offshore platforms and to protect the stability of the domestic financial system. Naturally, concerns have also been raised within the industry that the FATF's recommendations might hinder the growth of the cryptocurrency ecosystem. Especially for various startups and small and medium-sized enterprises, overly stringent regulations could raise market entry barriers and stifle innovation. Some industry stakeholders argue that while regulation is necessary, a proper balance is required to foster long-term industrial growth and a technology development ecosystem. Therefore, when applying FATF recommendations in South Korea, it is necessary to adhere to global standards while also considering domestic market conditions and the regulatory burden on businesses. The FATF report explicitly stated that a lack of cooperation betwe