Upbit Struck by Regulatory Crackdown in South Korea
South Korea’s largest cryptocurrency exchange, Upbit, has been hit with a three-month ban on new user transfers. The country’s Financial Services Commission (FSC) issued the ban for breaching a number of financial regulation rules, as per South Korean newspaper JoongAng Ilbo.
Violations and Regulatory Response
The FSC action follows Upbit’s failure to comply with a number of significant financial regulations, including:
- Prohibitions on trading
- Customer verification (KYC) processes
- Suspicious transaction reporting obligations
In addition to restricting new user transfers, the regulator admonished Dunamu, Upbit’s parent company. The FSC also terminated nine staff members, including Upbit’s compliance official, to emphasize the gravitas of the violations.
The regulatory agency pointed out that the steps will help make the cryptocurrency market more transparent and ensure stricter compliance with protocols. Regulators also indicated that increased scrutiny of Upbit’s operations is in the offing should compliance violations persist.
Dunamu’s Response and Reassurance to Clients
Dunamu acknowledged the regulatory action and indicated it is “discussing future measures carefully.” Although the limitation is in place, the company ensured that service to existing customers is unaffected. Dunamu further reconfirmed its commitment to strengthening internal controls so as not to repeat compliance issues.
Earlier Scrutiny and Market Impact
Upbit, which controls over 70% of South Korea’s cryptocurrency market, has been under increasing regulator pressure. Earlier reports suggested that the exchange had been probed for over 700,000 KYC violations discovered during an audit of its business license renewal.
Additionally, Upbit has only recently accepted to compensate the largest-ever sum to clients following system failures resulting from the imposition of martial law in December 2024. The government action amid the crisis led to nationwide unrest and disruption of financial services.
The market leadership of the exchange in South Korea implies that regulatory actions against it have spillover implications for the remainder of the domestic cryptocurrency industry. Investors and traders are watching with interest, as prospective regulatory moves could influence trading volumes and liquidity levels at exchanges.
Future Implications
This new prohibition is South Korea’s tightening regulatory grip on the crypto space. The FSC action may strike investor sentiment and re-design compliance expectations for other exchanges in the country.
Market onlookers have the view that these regulation moves could pave the way for further action against crypto exchanges that are not compliant with financial regulations. The government also indicated that a review of existing cryptocurrency regulation was in the cards to introduce further protection for consumers and increased transparency.
As Upbit alters course for compliance, the industry waits for forthcoming regulation adjustments that will reshape the business of cryptocurrency exchanges in South Korea.
