The South Korean Financial Services Commission has launched an investigation into the country’s largest cryptocurrency exchange-Upbit. The step is supposed to be a result of the prevalence of the exchange in the local market of digital currencies and for having a close relationship with K Bank, which is a digital bank.
Them monopolizes at least 80% of the entire volume, raising concerns about concentration and associated risks. It was during an Oct. 10 parliamentary session that such risks were brought up by Democratic Party lawmaker Lee Kang-il, who also stressed that market dominance by one single entity in such spheres could lead to a host of systemic problems.
FSC to Address Market Monopoly Concerns
FSC chairman Kim Byoung-hwan confirmed the investigation and pledged that the regulator will pay considerable attention to the market monopoly of Upbit. The worries of Lee were related to the potential risks of one company controlling such a big market share. He indicated that should something go wrong suddenly in the operation of Upbit, then this could lead to ripple effects throughout the whole crypto market of South Korea, which may have considerable impacts on K Bank because this bank depends considerably on deposits from Upbit.
K Bank’s Heavy Reliance on Upbit
Another point of interest regarding the investigation is the alleged close affiliation between Upbit and K Bank, in which more than 4 trillion won was deposited by users of the exchange. According to Lee, this heavy reliance entails a number of risks, one of which is a “bank run” expectation.
Lee also questioned the K Bank business model: how could it provide such an above-average 2.1% interest rate for deposits of Upbit if the bank has thin margins? This concern is made worse by an impending IPO on the horizon, which may heighten risks should the financial institution continue depending too much on the virtual asset exchange Upbit.
FSC to Investigate Upbit’s Dominance
FSC, along with the Virtual Assets Committee will look closer at Upbit’s market position and what that means for K Bank. Fair enough-but also as part of the greater trend in South Korea to regulate as a protection of its burgeoning crypto market.
Ramping Up Crypto Regulation in South Korea
The regulatory environment of South Korea has become increasingly extra-stringent in the last few years. It implemented anti-money laundering measures; the Protection of Virtual Asset Users Act-enforced exchanges were to store 80% of the assets of users in cold storage. The government also requested the Financial Supervisory Service to adopt real-time monitoring systems with crypto exchanges to further fortify protection for investors against market manipulations.
