Upbit Faces Six Month Ban Amid 700,000 KYC Violations in South Korea

South Korea’s Financial Services Commission (FSC) has temporarily suspended Upbit’s operations over 700,000 violations of Know Your Customer (KYC) obligations.

The suspension highlights the government’s commitment to tightening anti-money laundering (AML) regulations in cryptocurrency. This decision could significantly impact the market, as Upbit controls over 70% of South Korea’s crypto trading volume.

Upbit Faces Sanctions for KYC Failures

The Financial Intelligence Unit (FIU), under the FSC, uncovered extensive KYC failures during Upbit’s business license review. These lapses included improperly verified customer identities, violating the Virtual Asset User Protection Act enacted in July 2024.

This law mandates strict measures to prevent money laundering and terrorist financing in the growing crypto market.

The FSC’s investigation revealed these violations during an October 2024 review of Upbit’s license renewal process. Authorities identified over 700,000 instances where KYC obligations were not adequately implemented.

The FIU issued an advance notice of sanctions on January 9, pending further clarification and a final decision.

Noncompliance with KYC procedures carries hefty penalties, with fines reaching up to 100 million won (approximately $70,000) per case.

The proposed sanctions include a six-month suspension of new customer onboarding for Upbit while allowing existing users to continue trading. This enforcement underscores the government’s push for stronger AML frameworks in cryptocurrency frameworks.

Market Impact of Upbit Suspension and Regulatory Scrutiny

Upbit’s operational suspension sent ripples through South Korea’s cryptocurrency market, raising concerns among investors and rival exchanges.

The platform’s over 70% market share dominance makes its compliance lapses particularly significant. Other exchanges may now face heightened scrutiny as the FSC intensifies its oversight efforts.

Regulators also flagged earlier compliance concerns, including 600,000 potential KYC violations reported in November 2024. This scrutiny aligns with broader regulatory investigations, including an antitrust probe into Upbit for alleged unfair practices.

The suspension could undermine investor confidence and affect the country’s robust cryptocurrency market liquidity. South Korea’s adoption of cryptocurrency remains high, with over 30% of the population participating in digital asset trading.

Upbit’s operational challenges may impact the broader market if compliance violations continue to disrupt major platforms. Stricter enforcement could consolidate the industry further, benefiting larger exchanges but burdening smaller players.

Regulatory Reforms and Future Compliance Measures

South Korea is set to implement the second phase of its cryptocurrency regulatory framework in the second half of 2025. These reforms aim to strengthen AML measures and improve KYC protocols across all exchanges operating in the country.

Clearer compliance standards may help reduce ambiguities that currently challenge industry participants. While tighter regulations could enhance investor protections, they may also increase operational costs for smaller platforms.

The FSC’s ongoing efforts to enforce compliance have led to higher crypto delisting rates. This trend reflects the government’s determination to create a safer, more transparent environment for cryptocurrency trading.

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