South Korea Issues Suspension Notice to Upbit Crypto Exchange

South Korea’s cryptocurrency Exchange Upbit has been issued a Suspension Notice by the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC). The notice was issued the on January 16, citing alleged Know Your Customer (KYC) violations.

As one of the country’s largest cryptocurrency exchanges, Upbit has until January 20 to respond to the allegations or face a six-month suspension on new user registrations. This regulatory action could reshape the operational landscape for crypto exchanges in South Korea.

FIU Investigation Uncovers KYC Violations

The FIU’s investigation identified between 500,000 and 600,000 breaches in Upbit’s client identification processes. These findings emerged during the renewal of the exchange’s business license, a routine procedure that revealed critical lapses in regulatory compliance.

Compliance with KYC is not optional, it’s a fundamental requirement to ensure the security and legitimacy of the crypto market, said Lee Min-kyu, a South Korean financial compliance expert.

South Korea’s Special Financial Transactions Act mandates fines of up to 100 million Korean won (approximately $68,600) for each KYC violation. Given the scale of Upbit’s breaches, the exchange could face a staggering $34.3 billion penalty.

In addition to financial penalties, the suspension notice also restricts Upbit from onboarding new users, a move that could significantly impact its business growth and market dominance.

This is a pivotal moment for Upbit, noted blockchain analyst Kim Seo-jin. How they respond will determine their long-term survival in South Korea’s crypto market.

While the upbit exchange suspension notice targets new user registrations, existing users will continue to access Upbit’s services without restrictions. However, the exchange’s reputation may suffer, potentially driving some users to rival platforms.

The authority spotted Upbit’s KYC violations while reviewing the company’s business license renewal.

Founded in 2017, Upbit handles $7.5 billion in daily trading volume, according to CoinGecko. Despite its robust infrastructure, the current regulatory challenge could undermine user confidence.

The Upbit Exchange Suspension Notice follows earlier reports of non-compliance. In November 2024, South Korean regulators flagged the exchange for its dealings with unregistered crypto service providers.

The Special Act on Financial Transactions prohibits local companies from transacting with unregistered entities, a violation that Upbit is also accused of committing.

These issues highlight the need for stricter oversight and improved internal controls within the crypto industry, stated Park Eun-jung, a crypto governance consultant.

The Upbit case is part of a broader regulatory crackdown in South Korea’s cryptocurrency market. The government has been tightening its oversight to prevent fraud, money laundering, and other illicit activities.

The recent acquittal of Lee Jung-hoon, former chair of Bithumb, in a case involving a 2017 data breach underscores the high stakes for compliance in the crypto sector.

South Korea is setting an example for other nations, said global fintech expert David Shin. Strict regulations can stabilize the industry, but they also pose significant challenges for operators.

Upbit Exchange Suspension Notice:  Response and Market Implications

Upbit has until January 20 to submit its feedback to the FIU. The agency is expected to finalize its decision by January 21. How the exchange handles the Upbit Exchange Suspension Notice will have far-reaching consequences for its future and the broader market.

Failure to comply could lead to long-term reputational damage, reduced market share, and financial strain from hefty fines. On the other hand, successfully addressing these issues could restore trust and solidify Upbit’s position as a leading crypto exchange.

The Upbit Exchange Suspension Notice marks a defining moment for the platform and South Korea’s crypto industry. With potential fines exceeding $34.3 billion and a six-month suspension on the line, the exchange’s next steps will determine its future trajectory.

As the FIU prepares to announce its decision, the case serves as a cautionary tale about the importance of regulatory compliance in the fast-evolving cryptocurrency sector. Get more from The Bit Gazette