South Korea targets non-compliant crypto exchanges with potential bans

South Korean regulators are investigating crypto exchanges that may have offered services without reporting to the country’s financial authorities.

Recent reports from local media say the Financial Intelligence Unit (FIU) is actively investigating a number of platforms that may have served Korean users without complying with the country’s reporting mandates.

Crypto exchanges in South Korea are required to report as virtual asset service providers (VASPs) under South Korea’s Specified Financial Information Act, the country’s primary regulation that ensures compliance with anti-money laundering laws.

Failing to do so classifies their operations as illegal, exposing them to potential criminal charges and regulatory penalties.

According to reports, the FIU is reviewing a list of exchanges that are believed to be offering services such as marketing and customer support without appropriate VASP reports. 

Companies reportedly under scrutiny include BitMEX, KuCoin, CoinW, Bitunix and KCEX.

The FIU is working with other agencies to determine whether these platforms broke the rules and, if so, how to block public access to them.

An FIU official mentioned that they’re currently in discussions with the Korea Communications Standards Commission (KCSC) to explore technical methods for restricting access to unregistered platforms.

Since the KCSC oversees internet regulation, its involvement means authorities are considering direct ISP-level blocks or DNS filtering to cut off Korean users from reaching these exchanges.

However, similar restrictions in other jurisdictions have often led users to bypass blocks using tools like VPNs.

Upbit case sparks wider probe 

These efforts are part of a broader crackdown.

Just last month, the FIU handed a three-month suspension to Upbit, South Korea’s largest crypto exchange, after it was found to have facilitated tens of thousands of transactions with unregistered providers and fallen short of KYC requirements.

The FIU’s findings revealed lapses in Upbit’s identity verification system, with thousands of users reportedly being approved with unclear or incomplete documentation, even screenshots and blurred images.

In some cases, users were allowed to trade without verifying their identities at all.

Meanwhile, regulators are also investigating Bithumb, another major local exchange.

On March 20, prosecutors raided the company’s offices following suspicions that its former CEO, Kim Dae-sik, had embezzled company funds to buy an apartment.

Regulating crypto markets

Amid this backdrop, South Korea is planning the next wave of crypto regulations that are expected to be finalised by the end of 2025.

As reported by Invezz, during a Virtual Asset Committee meeting, Financial Services Commission’s Vice Chairman Kim So-young said that authorities had launched full-scale discussions on the second phase of crypto regulation that would address regulatory gaps.

The upcoming framework will encompass regulations around crypto trading, custody, brokerage, and advisory services.

Further, in February, the Financial Services Commission said it intends to ease the long-standing ban on institutional crypto trading gradually.

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