South Korea crypto regulations are tightening around investors and exchanges alike

Upbit, the leading cryptocurrency exchange in South Korea, is dealing with a regulatory storm. The platform is facing a suspension that could prevent it from registering new users for six months after it was accused of violating Know Your Customer (KYC) obligations.

After reviewing Upbit’s business license renewal, the Financial Intelligence Unit (FIU), a division of the Financial Services Commission of South Korea, issued the suspension notice, according to local media outlet Naver.

FIU Takes Action Against KYC Errors

The report claims that the regulator found between 500,000 and 700,000 cases of incorrect KYC verification. According to reports, this disclosure could lead to $34.3 billion in fines, with the country’s Special Financial Transactions Act imposing fines of up to $68,600 per infraction. Authorities also claim that Upbit broke regulations limiting transactions with foreign cryptocurrency service providers that are not registered. According to a FIU spokesperson, the enforcement action demonstrates a dedication to bringing justice and order back to the cryptocurrency industry.

Even though the proposed sanctions would only restrict the number of new users that could register, the financial and reputational consequences could be significant. According to CoinGecko data, Upbit, which accounts for more than 70% of South Korea’s cryptocurrency trading volume, reported daily trades of over $7 billion in 2024.

The timing of these penalties may make it more difficult for it to conduct business as usual in the future, as its business license renewal is still being reviewed. According to reports, Upbit will have a chance to make its case by January 20 and the FIU will make its final decision on January 21.

This disciplinary action is part of a larger regulatory effort to fortify counterterrorism financing and anti-money laundering regulations in the cryptocurrency industry.

Tightening Regulations

Exchanges are already having to deal with more stringent requirements as a result of the Virtual Asset User Protection Act, which went into effect in July 2024.

The market for digital assets is keeping a careful eye on the situation because of concerns that Upbit’s case might establish a precedent for more stringent enforcement throughout the sector. The controversy started after 31,000 user accounts were made public due to a data breach at Bithumb, another significant South Korean exchange, in 2017.

Since then, South Korean authorities have tightened their control over cryptocurrency companies, as evidenced by this well-publicized action against Upbit. The industry is currently awaiting the FIU’s final decision, which will decide Upbit’s future and the course of regulation for the cryptocurrency industry in South Korea.