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South Korea’s Financial Intelligence Unit (FIU) is investigating Upbit, one of the nation’s largest cryptocurrency exchanges, for possible Know Your Customer (KYC) violations.

According to a Nov 14 report, the FIU, a division of South Korea’s Financial Services Commission (FSC), identified between 500,000 and 600,000 potential KYC breaches on the platform during a review of its business license renewal.

South Korea introduced mandatory KYC protocols in January 2018 to regulate cryptocurrency exchange operations.

As a part of the measures, cryptocurrency trading was only allowed through real-name bank accounts in a bit to increase transparency and reduce financial crime risks. 

A mandatory registration system for virtual asset service providers (VASPs) soon followed, obligating exchanges to ensure full compliance with KYC and AML guidelines.

Upbit is suspected of allowing users to open accounts using IDs with blurred or incomplete personal details, including names and registration numbers.

This reportedly made it difficult for authorities to verify account holders properly, as required under South Korea’s KYC and Anti-Money Laundering (AML) laws.

If confirmed, the breaches could disrupt Upbit’s operations and result in penalties of 100 million Korean won ($71,500) per violation.

South Korea’s regulatory framework for cryptocurrency exchanges is one of the most stringent globally. Under the Virtual Asset User Protection Act, exchanges are required to undergo regular evaluations, pay supervisory fees, and meet strict due diligence standards. 

These measures ensure compliance, transparency, and robust investor protection measures to avoid incidents like the collapse of the Terra ecosystem that led to massive losses for South Korean investors.

The law also requires local exchanges to assess listed cryptocurrencies against specific criteria, including on-chain traceability, circulation metrics, and compliance with domestic regulations.

Issuers must disclose detailed information such as white papers and smart contract codes, and cryptocurrencies must have no prior security breaches.

Assets not qualified are delisted.

South Korea’s crypto market has shown strong growth even under strict regulations.

As previously reported by Invezz, in the second half of 2023, the number of crypto investors increased by 21%, reaching 7.8 million. 

Daily trading volumes also saw a sharp rise, climbing 67% to $4.4 billion.

Additionally, the market’s overall value grew by 27% year-over-year, reaching a total capitalization of $40 billion, reflecting the rising interest in digital assets across the country.

Meanwhile, the recent allegations against Upbit come shortly after a separate probe in October into potential anti-monopoly breaches. 

Authorities recently scrutinized the exchange’s close relationship with K-Bank, a financial institution heavily exposed to crypto transactions.

Reports indicated that 70% of K-Bank’s deposits were linked to Upbit, raising concerns over market dominance and concentration of risk.

Founded in 2017, Upbit has grown to become a leading cryptocurrency exchange in South Korea and globally.

The platform boasts a daily trading volume of $7.6 billion, according to CoinGecko. 

Despite legal hiccups, the exchange has continued to expand its global footprint and offerings.

In 2024, Upbit’s Singapore-based subsidiary received a Major Payment Institution license from the Monetary Authority of Singapore, enabling it to provide services under Singapore’s regulatory framework. 

The exchange has also been active in listing new cryptocurrencies, driving significant price increases for these tokens.

For instance, Wormhole’s W token surged over 20% after its listing on Upbit in October, while the Nervos Network’s CKB token saw a 110% jump following its debut in September.

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