Upbit, South Korea’s largest cryptocurrency exchange, is under scrutiny from the Financial Information Analysis Institute (FIU), an arm of the Financial Services Commission.
The investigation centres on allegations that Upbit has failed to comply with customer identification requirements. This could significantly impact the renewal of its business license, a process mandated every three years under the Special Money Act.
Claims of Record KYC Failures
During the review of Upbit’s business renewal application, the FIU identified between 500,000 and 600,000 cases where the Know Your Customer (KYC) process might not have been adequately performed.
KYC, a critical safeguard for anti-money laundering (AML) and counter-terrorism financing (CTF), requires exchanges to verify user identities before enabling deposits, trades, or withdrawals.
Examples of alleged lapses include blurred or incomplete identity documents, which could allow accounts to be opened with insufficient authentication. Such shortcomings heighten the risk of these accounts being exploited for illicit activities, including money laundering.
The Special Money Act imposes fines of up to 100 million won (approximately $74,000) per KYC violation. If the suspected cases are confirmed, the financial penalties could be staggering, placing Upbit under immense financial and reputational pressure.
The FIU is currently conducting a meticulous review of each suspected case to assess the extent of actual violations. This painstaking process has delayed the final decision on Upbit’s license renewal.
Upbit’s Response and Regulatory Background
An Upbit representative highlighted that the Special Money Act includes strict confidentiality provisions, preventing the exchange from discussing matters under investigation. They also noted that information related to the review is not shared internally.
Established in 2017, Upbit processes approximately $2.2 billion in daily transactions, solidifying its position as a dominant force in South Korea’s crypto market. However, its market dominance has recently come under increased scrutiny.
Broader Investigations into Upbit
The KYC investigation follows a separate inquiry earlier this year by the Financial Services Commission (FSC) into potential anti-monopoly violations. Lawmakers have voiced concerns over Upbit’s considerable market share and its partnerships, including its ties with K-Bank, an entirely online banking platform.
The outcome of the FIU’s investigation is likely to set a precedent for regulatory enforcement in South Korea’s evolving cryptocurrency market. A severe penalty or a refusal to renew Upbit’s license could signal stricter oversight of other exchanges, potentially reshaping the industry’s compliance standards.
As South Korea seeks to balance innovation with robust regulation, the Upbit case underscores the challenges of maintaining compliance in a fast-moving market. The results of the FIU’s findings and any subsequent penalties are being closely watched, as they could have significant ripple effects on the global cryptocurrency ecosystem.