South Korea’s Cryptocurrency Exchange Upbit Shutdown: Follow the 700,000 KYC Violations Revelations

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The major South Korean cryptocurrency exchange, Upbit, has been instructed by the Financial Services Commission (FSC) to halt its activities on a temporary basis. This directive was issued due to alleged breaches in Know Your Customer (KYC) responsibilities; the FSC is currently seeking additional information.

The action demonstrates the government’s increased focus on implementing stronger regulations against money laundering within the rapidly expanding cryptocurrency sector.

Regulator Flags 700,000 KYC Violations

On January 9th, it was announced by local media that the Financial Intelligence Unit (FIU), operating under the FSC, had given an early warning about penalties regarding approximately 700,000 cases of insufficiently executed Know Your Customer (KYC) processes on the Upbit exchange.

According to the report, these issues were found during a thorough examination linked to the renewal of Upbit’s business license, which has been subject to examination since October 2024.

As a crypto investor in the year 2024, I can’t stress enough the importance of KYC (Know Your Customer) processes that have been made mandatory under the Virtual Asset User Protection Act. These procedures are crucial in our fight against money laundering and terrorist financing activities. It’s essential to understand that breaching these protocols could lead to significant penalties, with each violation potentially costing up to 100 million won, which is roughly equivalent to $70,000, per case. So, let’s all make sure we’re doing our part to keep our crypto community safe and secure.

According to the report, the potential penalties imposed by the FIU may involve a temporary halt in Upbit’s business operations for up to six months. This means that the exchange wouldn’t be able to accept new customers during this period. However, current users would still have the ability to continue trading on the platform.

The sanction has not been concluded as of now, and it only affects the recruitment of new users. Existing users, though, can continue trading, irrespective of the sanction’s final decision,” the ex-Upbit employee humorously pointed out.

The ruling has stirred up a storm in South Korea’s cryptocurrency industry, which is largely controlled by Upbit (holding more than 70% of the market). Other trading platforms might need to prepare for potential repercussions from regulatory actions, especially since the Financial Intelligence Unit (FIU) seems to be strengthening its efforts towards enforcing compliance rules.

During this time, the suspension comes after several months of increasing regulatory examination. In mid-November, the Financial Intelligence Unit identified approximately 600,000 potential Know Your Customer (KYC) violations at Upbit, adding to concerns about its compliance procedures. Furthermore, the Financial Services Commission initiated a competition investigation into the exchange around three months ago, examining accusations of market monopoly and unfair tactics.

Potential Implications with Upbit’s Business License Risk

Amid a surge in cryptocurrency usage across South Korea, Upbit is experiencing difficulties. Nearly one-third of the population now owns digital assets, and transaction volumes hit all-time highs in 2024. Whether relaxed Know Your Customer (KYC) protocols played a part in this increase isn’t yet clear, as weak safeguards might have made it simpler for people to access trading platforms.

The operating license of Upbit, set to expire in October 2024, is currently being scrutinized. If regulatory infractions like know-your-customer (KYC) violations are discovered, it could potentially affect the chances of renewal, causing significant disruption to the exchange’s functioning.

A tightening of regulations might further increase the rate at which cryptocurrencies are removed from South Korean exchange platforms, as the Financial Services Commission’s rigorous compliance measures have led many exchanges to remove tokens that do not comply with the regulatory norms.

Similarly, a halt on Upbit could potentially undermine investor trust in the platform due to its significant influence. Protracted interruptions might also impact liquidity and trading activity levels.

In the year 2025 (second half), South Korea plans to implement the second stage of its cryptocurrency regulatory structure. This new framework is designed to bridge existing loopholes, primarily focusing on strengthening Anti-Money Laundering (AML) practices and reinforcing Know Your Customer (KYC) procedures.

These changes might make the rules more clear, eliminating uncertainties that trading platforms encounter now. Yet, enforcing these rules more rigorously may also increase the workload for smaller platforms, which could lead to a concentration of market influence in the hands of a few leading entities.

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2025-01-16 17:29