Upbit License Renewal on Hold After Discovery of 500,000 Suspected KYC Violations

South Korea’s Financial Intelligence Unit (FIU) has paused the license renewal process for Upbit, the country’s largest cryptocurrency exchange, after uncovering between 500,000 and 600,000 potential violations of Know-Your-Customer (KYC) regulations. These breaches, if confirmed, could result in significant fines for the platform and complicate its ability to renew its operating license.

According to a report by Maeil Business Newspaper, the FIU, part of South Korea's Financial Services Commission (FSC), identified the suspected KYC violations during on-site inspections as part of Upbit’s routine license renewal process. As a result, the exchange’s renewal has been delayed while authorities investigate the scale of the breaches.

Under South Korean law, cryptocurrency exchanges are required to enforce strict KYC procedures to prevent money laundering and other illicit activities. However, Upbit has allegedly allowed customers to open accounts despite incomplete or blurred identification information, which raises concerns about the platform's compliance with anti-money laundering (AML) regulations.

The suspected violations could lead to hefty fines for Upbit. Reports suggest the exchange may face a penalty of 100 million Korean won (approximately $71,500) for each case, which, given the large number of potential violations, could result in a total fine of around 35.8 billion Korean won (about $26.7 million).

Despite the gravity of the situation, South Korean authorities have not yet determined how this issue will impact Upbit’s license renewal. In a statement to Maeil Business Newspaper, a representative from Upbit declined to comment on the specifics of the investigation, citing the Special Financial Transaction Information Act, which prohibits the sharing of information related to ongoing reviews by the FIU.

The KYC violations reportedly stem from instances where customers were able to create accounts without proper identification validation, such as blurred names and ID numbers. These lapses pose a significant risk, as such accounts can potentially be used for money laundering or other illicit activities. Under current regulations, all South Korean crypto exchanges must adhere to KYC and AML protocols to maintain compliance.

This issue comes on the heels of another investigation into Upbit. In early October, the FSC announced plans to examine Upbit for potential violations of anti-monopoly laws, particularly in relation to its dominant market position and its close ties to K Bank. The FSC has also raised concerns about K Bank’s upcoming IPO, citing the risk of over-reliance on deposits from Upbit, which account for around 20% of the bank’s total deposits.

As the investigation into these KYC violations continues, the future of Upbit’s business license renewal remains uncertain, and the outcome could have significant implications for the exchange’s operations in South Korea.