South Korea’s Financial Services Commission (FSC) has ordered Upbit, the country’s largest cryptocurrency exchange, to temporarily cease operations. FSC has cited a breach of Know Your Customer (KYC) obligations and is awaiting further clarification.
The move reflects the government’s efforts to enforce stricter anti-money laundering (AML) measures in the growing cryptocurrency market.
Regulator Detects 700K KYC Violations
Local media report that the Financial Intelligence Unit (FIU), under the management of the FSC, issued a pre-notification of sanctions on January 9. There are over 700K cases of improper KYC implementation on the exchange Upbit trading.
According to the report, these irregularities were discovered during the scrutiny process related to the renewal of Upbit’s business license, which has been under scrutiny since October 2024.
The KYC process, regulated by the Digital Asset User Protection Act enacted in July 2024, plays an important role in preventing money laundering and terrorist financing. Violations of these procedures can result in fines of up to 100 million won (about 70K USD) per case.
The report said FIU sanctions could include suspension of business operations for up to six months. This will specifically prevent Upbit from admitting new users during the suspension period. However, existing users will still be allowed to trade on the platform.
“This sanction has NOT been finalized and if finalized, only user enrollment will be suspended. Registered users are free to trade regardless of the outcome of this sanction,” said a former Upbit employee joke.
This decision shocked the Korean cryptocurrency community, where Upbit holds more than 70% of the market share. Other exchanges may begin to prepare for regulatory enforcement impacts, especially as FIUs increasingly implement compliance measures.
Meanwhile, the suspension comes after months of intense regulatory scrutiny. In mid-November, FIU discovered 600K potential KYC violations at Upbit, reinforcing concerns about the exchange’s compliance practices. Additionally, the FSC launched an antitrust investigation into the exchange three months ago, investigating allegations of market dominance and unfair practices.
Potential Consequences for Upbit’s Business License Risk
Upbit’s difficulties come as Korean people’s adoption of cryptocurrencies reached a record high. More than 30% of the population now invests in digital assets and the country saw record transaction volumes in 2024. It remains unclear whether weak KYC implementation contributed to this increase, given the lack of controls. controls could have facilitated easier access to trading platforms.
Upbit’s license, which expires in October 2024, is currently under review. Regulatory violations such as KYC violations can impair renewal prospects, severely damaging the exchange’s operations.
The crackdown could also exacerbate South Korea’s already high cryptocurrency delisting rate. FSC’s strict compliance requirements have forced exchanges to delist many tokens that do not meet regulatory standards.
In the same way, Upbit’s suspension could shake investor confidence in the exchange, given the platform’s dominance. Any prolonged disruption could impact liquidity and trading volumes.
Looking ahead, South Korea is expected to introduce the 2nd phase of its cryptocurrency regulatory framework in the second half of 2025. The upcoming reforms aim to address gaps in the current system, with a focus on enhanced AML measures and tightened KYC protocols.
These reforms could clarify compliance standards, reducing the ambiguities that exchanges currently face. However, stricter enforcement could increase the operational burden on smaller platforms, potentially consolidating the market power of a small number of key players.