In November 2024, South Korean regulators launched an investigation into Upbit, the country’s largest digital asset exchange, for allegedly violating Know Your Customer (KYC) regulations. The exchange is getting closer to knowing its fate as tension rises among other exchanges who fear they could be next.
South Korea’s Financial Services Commission (FSC) alleged that Upbit had been onboarding new users without doing the proper KYC checks. Through its Financial Intelligence Unit (KoFIU), the watchdog claimed it had identified over 500,000 cases in which the exchange had flouted the law.
In addition to KYC breaches, Upbit reportedly allowed its users to transact with exchanges that have yet to obtain a license in South Korea.
Upbit’s operator Dunamu recently had a session with KoFIU officials to argue its case. Local newspaper The Korea Times reports that the watchdog is now finalizing its sanctions against the exchange, which could range from restrictions on user withdrawals to fines against the management and staff.
“Nothing has been decided yet, as the sanction procedures are still ongoing,” an FSC official told the paper. A Dunamu official pledged to “provide a thorough explanation through the upcoming procedures, including the sanctions review committee,” in the coming days.
The fines could be massive. For reference, when the FSC found that the local exchange Hanbitco had failed to conduct proper KYC for just 200 users, it imposed a KRW 2 billion ($1.24 million) fine, although a Seoul court later overturned the ruling.
According to The Korea Times, tension in the South Korean digital asset industry is high as Upbit awaits its fate. Other exchanges fear that they will be next once the watchdog concludes the Upbit investigation.
FSC has already conducted an on-site inspection of Korbit and GOPAX exchanges; Bithumb and Coinone are next up for review later this year. After the top five, smaller exchanges could face a similar fate.
“If a major player like Upbit faces sanctions, smaller virtual asset exchanges will inevitably feel even greater pressure,” an official from an unnamed exchange told the paper.
Indeed, the smaller exchanges’ concerns are justified. Before the current investigation, Upbit was believed to be the most compliant exchange in the country. It was, after all, the first to register with the FSC under a revamped framework back in 2021. When regulators demanded that all exchanges must complete real-name verification for their users and establish a partnership with a local bank for on- and off-ramping, Upbit was also the first to announce compliance.
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