Upbit Faces Severe Penalties for AML and KYC Violations

South Koreas largest cryptocurrency exchange, Upbit, is facing sanctions from financial regulators for failing to meet Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations. According to the Financial Intelligence Unit (FIU) under the Financial Services Commission (FSC), Upbit has been found responsible for as many as 700,000 cases of improper KYC implementation and conducting transactions with unregistered overseas virtual enterprises, violating the Act on Reporting and Using Specified Financial Transaction Information.

On January 9, the FIU issued a pre-sanction notice to Upbit, proposing a core measure to suspend its new customer-related operations for up to six months. While existing users‘ transactions will not be affected, the sanction could severely limit Upbit’s ability to expand its market presence. Furthermore, the exchange may face fines of up to KRW 100 million per violation, significantly increasing its compliance costs.

South Koreas Increasing Regulation of Virtual Assets

The penalty against Upbit is not an isolated incident but part of South Koreas broader effort to bring order to the virtual asset industry. Since the enactment of the Virtual Asset User Protection Act in July 2023, authorities have intensified oversight of exchanges to combat illegal and unfair market practices, promoting transparency and security in the sector.

As the market leader, accounting for over 70% of the country‘s trading volume, Upbit’s investigation has drawn significant attention across the industry. Smaller exchanges fear similar regulatory scrutiny and are tightening internal compliance measures. Through high-profile enforcement actions like this, the South Korean government aims to signal a tougher regulatory stance and lay the groundwork for a more comprehensive cryptocurrency compliance framework.

Future Implications: Upbits Licensing and Industry Impact

This sanction raises uncertainties regarding the renewal of Upbit‘s business license. Upbit’s license expired in October 2023 and is currently under review. The sanctions outcome could directly impact the renewal process and may result in stricter compliance requirements.

Additionally, the investigation revealed that Upbit engaged in business with unregistered overseas virtual enterprises without verifying their qualifications. Although Upbit attributed these issues to difficulties in assessing counterparties credentials, the lapses highlight gaps in its internal compliance system. This has fueled concerns about stricter measures from regulators for similar cases in the future.

Conclusion

The Upbit case represents a significant test for cryptocurrency exchanges and a push toward greater standardization within the industry. As the January 21 hearing approaches, the outcome will be closely watched for its implications on Upbit‘s operations and its broader impact on South Korea’s and the global cryptocurrency markets.