South Korea’s Financial Intelligence Unit (FIU) has issued a formal suspension notice to Upbit, the largest cryptocurrency exchange in the nation, following allegations of non-compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. The exchange has been given a deadline of January 20 to respond, and final decisions on potential sanctions are expected on January 21.
The suspension would prevent Upbit from onboarding new traders but would allow current users to continue trading. This regulatory action follows an earlier warning from the FIU in early January, highlighting the possibility of a suspension that could last up to six months.
The main cause for concern lies in the reported KYC violations tied to Upbit’s operations. The regulator’s investigation has revealed that approximately 700,000 instances of non-compliance were identified, which could result in fines of up to 35.8 billion Korean won (approximately $24.5 million). Each KYC violation carries a potential penalty of up to 100 million Korean won ($71,500), emphasizing the scale of the infractions.
Further complicating the situation, the FIU is also investigating Upbit’s involvement with unregistered foreign crypto firms, alleging that such transactions violate South Korea’s financial regulations. Although Upbit has expressed a commitment to identifying such firms proactively, it maintains that no intentional breaches of the law were made.
The regulatory scrutiny of Upbit is not limited to KYC and AML concerns. The exchange’s relationship with K Bank, South Korea’s first internet-only bank, has raised additional alarms. Upbit’s deposits constitute a significant portion—around 20%—of K Bank’s total holdings, leading to fears that disruptions at Upbit could lead to a bank run.
Moreover, the Financial Services Commission (FSC), the nation’s top financial regulator, is investigating Upbit’s dominant position in the South Korean market, where it controls about 70% of the digital asset trading volume. The FSC’s examination has expanded to include Upbit’s dealings with K Bank, questioning the implications for fair competition and financial stability.
In response to the growing concerns, the FSC is also working on expanding South Korea’s crypto regulatory framework. Discussions are underway to introduce new regulations in the latter half of 2025, with a focus on investor protection, clearer compliance guidelines, and managing risks associated with crypto asset mismanagement.
