Crypto Exchange Upbit Hit With Suspension Notice In South Korea Over KYC Violations

South Korea’s largest crypto exchange, Upbit, has reportedly received a suspension notice from the Financial Services Commission (FSC) for allegedly violating anti-money laundering (AML) and Know-your-client (KYC) requirements.

Upbit Faces Suspension Of Up To 6 Months

On Thursday, the Maeil Business Newspaper reported that South Korea’s Financial Intelligence Unit (FIU) notified the crypto exchange Upbit of possible sanctions over alleged violations of the Financial Transaction Information Act.

According to the report, Upbit failed “to fulfill its anti-money laundering obligations, including violating the KYC system,” which could result in a business suspension of up to six months.

The measure would restrict Upbit from registering new users while the suspension lasts. However, existing customers would not be affected. “The sanction is designed to restrict new customers from transferring cryptocurrency outside of the exchange for a certain period,” the exchange explained in a statement cited by the report.

Upbit has until January 20 to submit an appeal to the FIU, as the regulatory agency will hold a hearing the following day to finalize the decision and establish the penalty’s duration.

The Maeil Business also noted that the sanctions on Upbit could “cause other crypto exchanges to reel” since it could be “interpreted as a reflection of the financial authorities’ will to correct the illegal and unfair market order that has been pointed out as a problem in the virtual asset industry since the enforcement of the Virtual Asset User Protection Act in July last year.”

The country is entering the second phase of South Korea’s new crypto investor protection laws. Phase one focused on safeguarding customer deposits and tackling unfair trading practices. Meanwhile, the second phase will focus on closing regulatory gaps related to crypto asset issuance and distribution.

South Korea’s Crypto Industry Awaiting The Sanctions

The crypto industry is reportedly interested in how the sanctions could affect Upbit’s business license renewal. Under the Special Money Act, virtual asset service providers (VASPs) must renew their licenses every three years.

Upbit’s license renewal process, which started in August, raised questions among the financial community about its extended timeline. According to previous reports, authorities’ extensive investigation has affected the license renewal, which expired in October.

While reviewing the exchange’s license renewal, the FIU found large-scale cases suspected of violating customer identification procedures. The financial authority identified around 600,000 cases where the KYC process was not properly followed.

The crypto exchange allegedly opened thousands of accounts without proper verification, failing to comply with anti-money laundering and Combating the Financing of Terrorism (CFT) requirements.

According to the reports, Upbit could face fines of up to 100 million won per case, worth around $68,000, which could cost $40 billion if all 600,000 cases were confirmed and fined.

Moreover, the report shared that the FIU allegedly imposed sanctions after determining the crypto exchange offered its service to unverified businesses overseas. South Korean regulations stipulate that local exchanges can only conduct transactions with registered service providers.