Major South Korean cryptocurrency exchange Upbit is under scrutiny for alleged violations of Know Your Customer (KYC) protocols, which could jeopardise its local licence renewal. The Financial Intelligence Unit (FIU) of South Korea’s Financial Services Commission (FSC) has reportedly identified between 500,000 and 600,000 potential KYC breaches on the platform, according to a Nov. 14 report from Maeil Business Newspaper (MK).
The alleged violations surfaced during the regulatory body’s review of Upbit’s business licence renewal, raising concerns about the exchange’s compliance and its ability to continue operating within South Korea.
KYC Failures and Their Implications
Cryptocurrency exchanges in South Korea, classified as Virtual Asset Service Providers (VASPs), are legally required to implement strict KYC measures. These regulations were intensified in January 2018, when the South Korean government mandated real-name bank accounts for crypto trading. The FSC later introduced a compulsory registration process for crypto exchanges to ensure adherence to KYC and Anti-Money Laundering (AML) protocols.
The FIU’s investigation reportedly revealed multiple lapses in Upbit’s customer verification procedures. One cited example involved the exchange allowing users to open accounts using identification documents with blurred details, such as names and registration numbers, making proper identification difficult for regulators.
Upbit could face fines of 100 million Korean won ($71,500) for each alleged breach. Moreover, these issues could complicate the renewal of its business licence, threatening its operations in the country.
Upbit Under Pressure
Since its launch in 2017, Upbit has become one of South Korea’s largest cryptocurrency exchanges, facilitating $2.2 billion in daily trading volume, according to CoinGecko. However, these recent allegations add to the growing regulatory scrutiny faced by the exchange.
The disclosure of Upbit’s KYC issues follows the FSC’s announcement in October of plans to investigate the exchange for potential anti-monopoly violations. Upbit’s close ties to K-Bank, a digital bank that handles a significant portion of its deposits, have drawn regulatory attention. Reports suggest that up to 70% of K-Bank’s deposits are linked to cryptocurrency activity, further fueling concerns.
K-Bank’s IPO Withdrawal Raises Questions
In a related development, K-Bank withdrew its planned $732 million initial public offering (IPO) in October 2023. Bloomberg reported that the decision stemmed from concerns over the bank’s high valuation and reliance on a cryptocurrency operator for its funding. If completed, the IPO would have been South Korea’s largest public listing since 2022.
The combination of Upbit’s alleged KYC failures and its partnership with K-Bank underscores the increasing regulatory challenges facing South Korea’s crypto sector. As authorities tighten their oversight, the outcomes of these investigations could reshape the landscape for digital asset trading in the country.
