• Upbit may face up to six months of business suspension for KYC and AML violations.  
• FIU found 700,000 KYC lapses during license renewal inspections.  
• Sanctions could impact Upbit’s dominance in Korea’s crypto market. 

South Korea’s leading cryptocurrency exchange, Upbit, is facing potential sanctions for alleged anti-money laundering (AML) and Know Your Customer (KYC) violations. According to reports, the Financial Intelligence Unit (FIU) has flagged the platform potentially leading to a six-month suspension for onboarding new customers. Existing users, however, will retain access to trading services.

KYC Violations Trigger Regulatory Action

The FIU reportedly uncovered 700,000 instances of inadequate KYC procedures during Upbit’s license renewal inspection last year. These instances include suspected transactions with unregistered foreign exchanges. Upbit claims these were oversights, citing the difficulty of distinguishing unregistered offshore platforms on the blockchain.

This action reflects the Financial Services Commission’s increased focus on enforcing the Specific Financial Transaction Information Act. Motivated by the July 2024 Virtual Asset User Protection Act, the agency seeks to address irregularities in the crypto market.

Related: Bithumb Signs with Kookmin Bank, Challenges Upbit for Market Lead

Potential Fines and Market Impact

Upbit can challenge the FIU’s findings until January 20th before a disciplinary hearing on January 21st that will determine the sanctions. With its license expired in October and under review, Upbit’s position in Korea’s crypto sector is uncertain. The exchange could face significant fines of up to 100 million won per KYC violation.

The industry is watching closely to see how this affects other exchanges and if stricter enforcement measures will follow. Upbit’s large market share – over 70% of the Korean market – could shrink considerably.

Related: South Korea’s Jeju Island Leads Blockchain Tourism Push

South Korea Mulls Stock-Like Rules for Crypto

In a separate development, South Korea’s Financial Services Commission plans to regulate new cryptocurrency listings much like stocks. Proposed rules include mandatory business reports (like 10-K forms), increased scrutiny of “meme” tokens, and stablecoin issuance regulations. These aim to prevent “pump-and-dump” schemes.

Mainstays such as Bitcoin and XRP may be exempted, but stricter disclosure rules could discourage new coins from listing on Korean exchanges. The upcoming Phase 2 legislation, expected later this year, will be key in shaping the future of crypto regulation in South Korea.