Upbit Faces Suspension Notice for KYC Violations in South Korea

Upbit, one of South Korea's largest cryptocurrency exchanges, has been issued a suspension notice by the country's Financial Services Commission (FSC) over alleged Know Your Customer (KYC) violations. According to a report from Naver on January 16, the Financial Intelligence Unit (FIU) of the FSC notified Upbit of the potential penalties, which could include a six-month suspension of new user registrations.

Upbit must respond to the suspension notice by January 20. The authorities have indicated that a final decision on the penalty will be made by January 21. If enforced, the suspension would apply only to new user registrations, leaving existing accounts unaffected.

The Alleged KYC Violations

The suspension notice comes after an investigation revealed that Upbit had breached KYC regulations, with the FIU identifying between 500,000 and 600,000 instances of inadequate client identification. These violations were discovered during a review of the exchange’s business license renewal process. The KYC issues are reportedly tied to Upbit’s failure to properly verify the identities of a significant number of its users, in violation of South Korea’s stringent anti-money laundering (AML) laws.

Founded in 2017, Upbit has grown to become one of the largest cryptocurrency exchanges in South Korea and globally, with a daily trading volume of $7.5 billion, according to CoinGecko. However, the exchange’s handling of KYC procedures is now under scrutiny.

Potential Financial Penalties

Under South Korea’s Special Financial Transactions Act, the penalties for KYC violations can be as high as 100 million Korean won (approximately $68,600) per case. With Upbit’s alleged 500,000 KYC breaches, the company could face a staggering fine of up to $34.3 billion if each violation is treated as an individual case. This fine would represent a significant financial burden for the platform.

Additionally, South Korea’s Special Act on Financial Transactions prohibits local crypto companies from engaging in transactions with unregistered crypto service providers. According to the report, Upbit has also been found in violation of this regulation by conducting business with unregistered crypto operators.

Broader Regulatory Landscape

This development comes at a time when South Korean authorities are intensifying their oversight of the cryptocurrency sector. The country has been working to tighten its regulatory framework for digital assets, with exchanges facing increasing scrutiny to comply with KYC and anti-money laundering laws.

In a related matter, South Korean authorities have been pursuing a long-running court case involving Lee Jung-hoon, the former chairman of Bithumb, another major local crypto exchange. On January 16, Lee was reportedly acquitted in an appeal trial related to a large-scale customer data breach at Bithumb in 2017, which compromised the accounts of 31,000 users.

Next Steps for Upbit

Upbit now has a short window to respond to the suspension notice and make its case to the FIU. The final ruling on the potential penalties will be issued shortly after the response deadline, which could have significant implications for the exchange’s operations. Should the suspension be enforced, Upbit will be restricted from registering new users for six months, which could hinder its growth in the competitive South Korean crypto market.

As the regulatory environment for cryptocurrencies continues to evolve in South Korea, Upbit’s case highlights the growing pressure on exchanges to ensure compliance with rigorous KYC and AML standards.