Emily Walker
Upbit, the largest cryptocurrency exchange in South Korea, has received a notice of suspension from the Financial Services Commission (FSC) due to alleged failures in complying with anti-money laundering (AML) and Know-your-client (KYC) regulations.
Upbit May Face a Six-Month Suspension
According to a report by the Maeil Business Newspaper, the Financial Intelligence Unit (FIU) has informed Upbit of potential sanctions related to violations of the Financial Transaction Information Act.
The report indicates that Upbit has not adequately met its AML responsibilities, particularly concerning the KYC process, which could lead to a suspension of its operations for up to six months.
During this suspension, Upbit would not be allowed to accept new registrations, although existing users would still have access to their accounts. The exchange clarified that this sanction aims to restrict new users from moving their cryptocurrencies off the platform for a certain period.
Upbit has until January 20 to appeal the FIU’s decision, with a hearing scheduled the next day to finalize the penalties and duration of the suspension.
The newspaper also mentioned that these sanctions could have a ripple effect on other crypto exchanges as it may signal the authorities’ commitment to address known issues in the virtual asset market since the implementation of the Virtual Asset User Protection Act last July.
As South Korea progresses into the second phase of its crypto investor protection laws, the focus will shift from customer deposit safeguards and combatting unfair trading to plugging regulatory gaps around crypto asset issuance and distribution.
Crypto Sector Awaits Implications of the Sanctions
The crypto sector is closely monitoring how these sanctions might influence Upbit’s business license renewal. Per the Special Money Act, virtual asset service providers (VASPs) are required to renew their licenses every three years.
Questions have arisen within the financial community regarding Upbit’s license renewal, which began in August and has been prolonged. Previous reports suggest that an extensive investigation by authorities has impacted the renewal process, which was due in October.
During their review, the FIU uncovered significant instances where customer identification processes were not followed, identifying around 600,000 cases of KYC irregularities.
These compliance failures reportedly included the exchange opening numerous accounts without proper verification, neglecting AML and Combating the Financing of Terrorism (CFT) regulations.
Reports indicate that Upbit could face fines of up to 100 million won per violation (approximately $68,000), with potential costs reaching $40 billion if all 600,000 cases warrant penalties.
Moreover, the FIU has reportedly taken action after determining that Upbit was providing services to unverified foreign businesses, contrary to local regulations, which only allow transactions with registered service providers.