Upbit Faces Billions in Fines for 700,000 Rule Violations Amid South Korea’s Crypto Crackdown
South Korea’s Financial Services Commission (FSC) is preparing to issue sanctions against Upbit, the country’s largest cryptocurrency exchange, after uncovering over 700,000 violations of Know Your Customer (KYC) regulations.
As the dominant player in the local market, controlling over 80% of crypto trading, Upbit’s case could reverberate across other regional exchanges.
Authorities have suggested that Upbit may face fines of billions of Won, with penalties reaching up to $68,600 per violation under the Special Financial Transactions Act.
According to The Korean Times, speculation is mounting that the exchange could also be subjected to a temporary suspension of operations, restricted user registrations, or additional compliance measures.
The FSC’s final decision, expected soon, will clarify the regulatory framework that exchanges must follow in the future.
The South Korean regulatory landscape has tightened significantly following the implementation of the Virtual Asset User Protection Act in July 2024.
With the 'Virtual Asset User Protection Act' set to take effect on July 19, the FSC has issued new guidelines detailing when NFTs should be considered virtual assets. #NFTs #SouthKoreahttps://t.co/ZVh6rev1g0
— Cryptonews.com (@cryptonews) June 10, 2024
Upbit Rules Violations: What’s Next For The Exchange?
The FSC launched an investigation into Upbit in November 2024, alleging that the exchange had failed to properly verify customer identities, a fundamental requirement in preventing illicit financial activities.
The Financial Intelligence Unit (KoFIU) spearheaded the investigation and identified over 700,000 KYC violations alongside allegations that Upbit facilitated transactions with unlicensed exchanges.
Upbit’s parent company, Dunamu, has engaged with regulatory officials to present its case, but authorities remain firm in their stance.
The looming penalties have stirred the South Korean crypto industry, as other exchanges anticipate increased scrutiny.
The FSC has already initiated on-site inspections of Korbit and GOPAX, with Bithumb and Coinone next in line for review.
Fear is looming that the regulatory pressure on Upbit could extend to smaller exchanges, which may struggle to meet heightened compliance demands.
One exchange official noted,
“If a major player like Upbit faces sanctions, smaller virtual asset exchanges will inevitably feel even greater pressure.”
Notably, Upbit has historically been regarded as one of the more compliant exchanges, having been the first to register under South Korea’s revamped regulatory framework in 2021.
The exchange was also an early adopter of real-name verification and local banking partnerships for crypto transactions.
This has led to speculation that the current investigation indicates an even more aggressive regulatory approach.
Past Legal Challenges Amid Growing Influence
Upbit’s regulatory troubles are not without precedent. In January 2024, the exchange and rival Bithumb faced scrutiny over customer compensation for outages during the December 3 “Martial Law Day” chaos.
The South Korean government’s unexpected declaration of martial law triggered a financial crisis, causing Bitcoin’s price to plummet and a surge in trading activity that overwhelmed major crypto platforms.
As a result, Upbit and Bithumb agreed to compensate users for losses, collectively paying out approximately $2.4 million across 720 cases.
However, critics argued that the compensation process lacked uniformity, as exchanges determined their payout structures rather than implementing a standardized approach.
The government’s response to the outages included on-site inspections and regulatory directives to enhance platform resilience.
Authorities urged exchanges to upgrade their server capacities, improve cloud services, and refine emergency response protocols to prevent similar disruptions in the future.
The Financial Supervisory Service (FSS) has since been actively monitoring exchanges’ compliance with these measures, further intensifying regulatory oversight.
Amid all this turbulence, South Korean banks are increasingly eager to form partnerships with the country’s leading crypto exchanges, especially as regulators prepare to allow firms to buy Bitcoin (BTC) and other tokens with their balance sheets later this year.
🇰🇷South Korean banks are growing keener than ever to strike lucrative new partnership deals with the nation’s biggest crypto exchange players, a report has claimed.#SouthKorea #CryptoExchanges https://t.co/4poYMYw8l2
— Cryptonews.com (@cryptonews) February 18, 2025
With Upbit’s contract with K Bank set to expire in October, major banks like KEB Hana Bank and Woori Bank are closely monitoring the situation, hoping to enter the market.
Source: cryptonews.com
