South Korea’s Financial Services Commission (FSC) has ordered Upbit, the country’s largest cryptocurrency exchange, to temporarily suspend operations. The FSC cited violations of Know Your Customer (KYC) obligations and is awaiting further clarification.
The move reflects the government’s intensified efforts to enforce stricter anti-money laundering (AML) measures in the growing crypto market.
Regulator Flags 700,000 KYC Violations
Local media reported that the Financial Intelligence Unit (FIU), under the FSC, issued an advance notice of sanctions on January 9. It cited over 700,000 instances of improperly implemented KYC procedures on the Upbit exchange.
Based on the report, these lapses were uncovered during an extensive review tied to Upbit’s business license renewal, which has been under scrutiny since October 2024.
KYC processes, mandated by the Virtual Asset User Protection Act enacted in July 2024, are critical for preventing money laundering and terrorist financing. Violations of these procedures can attract fines of up to 100 million won (approximately $70,000) per case.
The report states that the FIU’s sanctions could include a business suspension of up to six months. This would specifically prevent Upbit from onboarding new customers during the suspension period. However, existing users would still be allowed to trade on the platform.
“This sanction is NOT finalized yet, and if finalized, only recruiting new users is suspended. Onboarded users are free to trade regardless of the outcome of this sanction,” a former Upbit employee quipped.
The decision has sent shockwaves through South Korea’s crypto sector, where Upbit dominates with over 70% of the market share. Other exchanges could begin bracing for regulatory fallout, particularly as the FIU ramps up its enforcement of compliance measures.
Meanwhile, the suspension follows months of mounting regulatory scrutiny. In mid-November, the FIU flagged 600,000 potential KYC violations at Upbit, further solidifying concerns over its compliance practices. Additionally, the FSC launched an antitrust investigation into the exchange three months ago, probing allegations of market dominance and unfair practices.
Potential Implications with Upbit’s Business License Risk
Upbit’s struggles come amid record-high crypto adoption in South Korea. Over 30% of the population is now invested in digital assets, and the country saw unprecedented transaction volumes in 2024. It remains unclear whether lax KYC enforcement contributed to this surge, as insufficient controls could have facilitated easier access to trading platforms.
Upbit’s license, which expired in October 2024, is currently under review. Regulatory breaches such as KYC violations could jeopardize its renewal prospects, severely damaging the exchange’s operations.
The crackdown could also exacerbate South Korea’s already high crypto delisting rates. The FSC’s stringent compliance requirements have forced exchanges to delist numerous tokens that fail to 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 also liquidity and trading volumes.
Looking ahead, South Korea is set to introduce the second phase of its crypto regulatory framework in the second half of 2025. The upcoming reforms aim to address gaps in the current system, with a strong focus on enhancing AML measures and tightening KYC protocols.
These reforms could clarify compliance standards, reducing the ambiguities that exchanges currently face. However, stricter enforcement could also increase operational burdens for smaller platforms, potentially consolidating market power among a few dominant players.
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