South Korea’s Upbit hit with suspension notice over multiple violations

South Korean regulators have issued a suspension notice for cryptocurrency exchange Upbit after it allegedly failed to implement proper Know Your Customer (KYC) standards.

On January 9, Upbit, one of the country’s largest crypto exchanges, received a suspension notice from the Financial Intelligence Unit (FIU) of South Korea’s Financial Services Commission (FSC) for violating KYC and anti-money laundering norms.

According to local reports, the FSC has warned that the exchange could be looking at restrictions that would prevent it from onboarding new customers for up to six months if the regulator sees fit.

However, users already on the platform would be unaffected by the suspension.

Even though Upbit received the notice this month, it has been under scrutiny since November of 2024.

During an onsite inspection as a part of the exchange’s license renewal process, regulators found roughly 700,000 cases where a proper due diligence process was not implemented.

Moreover, the exchange has also been accused of conducting business with unregistered overseas entities.

In its defense, Upbit said it was difficult to identify foreign operators on-chain but stressed that it has no intention of violating regulatory requirements.

Under the Special Financial Transaction Information Act, exchanges in South Korea are required to register with the FIU, report suspicious transactions, ensure proper due diligence measures are in place, and avoid engaging in transactions with unregistered entities.

Non-compliance can result in severe penalties, including fines, suspension of operations, or even license revocation.

For its KYC violations alone, Upbit is looking at a cumulative fine of over $48 billion, as penalties can range up to 100 million Korean won per case.

The exchange’s license renewal was already put on hold in November, and this time around, the company has until January 20 to submit its feedback regarding the FIU’s findings, following which a final decision regarding the penalties will be made by January 21.

Upbit’s history of regulatory scrutiny

Unfortunately, this is not the first time the exchange has been scrutinized.

In October last year, the FSC said it would probe Upbit over concerns about its market dominance and its close ties with K Bank.

Founded in 2017, Upbit accounts for over 70% of the overall crypto trading volume generated in South Korea.

It was also incriminated in a scandal alongside the crypto exchange Bithumb involving a lawmaker who engaged in cryptocurrency trading during parliamentary sessions while supporting regulatory legislation that could have impacted the digital asset market.

At the time, raids were conducted across offices of both platforms.

The recent developments come as South Korea is focusing on addressing regulatory gaps in the cryptocurrency market.

As previously reported by Invezz, lawmakers have officially begun working on the second phase of crypto regulations, with a draft expected to be finalized by the first half of 2025.

Laws around trading, brokerage, custody, and stablecoin transactions, among others, will be decided in this stage.

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