South Korea’s top cryptocurrency exchange, Upbit, is under investigation by the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) for alleged violations of Know Your Customer (KYC) requirements. The probe comes as part of Upbit’s periodic business license renewal process, with at least 500,000 to 600,000 suspected instances of improper KYC procedures identified during the review.
FIU Investigation Findings
The FIU began its on-site inspection of Upbit in late August after the exchange submitted its renewal application. Preliminary findings revealed numerous instances where identification documents provided by users were either unclear or incomplete but were still accepted during account creation.
The KYC process, designed to prevent money laundering (AML) and combat the financing of terrorism (CTF), requires exchanges to verify user identities through government-issued IDs before allowing transactions. However, the FIU found cases where blurred or improperly captured details—such as names or registration numbers—were used to open accounts. Such lapses increase the risk of accounts being misused for illicit activities.
Potential Implications
The sheer volume of suspected violations has drawn attention to the possible penalties Upbit might face. Under South Korea’s Act on Reporting and Using Specified Financial Transaction Information (commonly known as the Special Financial Transactions Act), violations of KYC obligations can result in fines of up to 100 million KRW (approximately $74,000 USD) per case.
If substantiated, these findings could impact Upbit’s ability to renew its business license, a process required every three years. While KYC violations typically lead to financial penalties, the scale of this case makes the situation unprecedented.
Upbit’s Response
Upbit has declined to comment on the ongoing investigation, citing legal restrictions under the Special Financial Transactions Act. An Upbit representative stated, “Matters related to the FIU’s review cannot be disclosed, even internally within the company.”
Industry Impact
The extended review period and the volume of flagged cases have heightened industry concerns about regulatory scrutiny of cryptocurrency exchanges in South Korea. Analysts are watching closely to see how many of the suspected violations translate into confirmed breaches and how regulators choose to handle such a significant case.
Regulatory Context
South Korean cryptocurrency exchanges are required to renew their licenses every three years. The stringent process includes compliance checks to ensure adherence to AML and CTF guidelines. The FIU’s thorough review of Upbit may set a precedent for future license renewals across the industry.
The outcome of this investigation could have wide-ranging implications for Upbit and other exchanges, potentially reshaping the regulatory landscape for South Korea’s cryptocurrency sector.
