Up to 500k KYC Breaches Under Investigation
The Financial Intelligence Unit of South Korea reportedly discovered between 500,000 and 600,000 suspected Know-Your-Customer breaches during a regular inspection of Upbit, the largest cryptocurrency exchange in the country. The suspected breaches were part of the review by the FIU on how Upbit complied with local regulations, one of the important requirements for the renewal of the company’s business license.
The investigation revealed that Upbit may have allowed its clients to create accounts with inappropriate identification. It has been reported that the names and identification numbers of customers were blurred to avoid the strict KYC and AML established by South Korea’s law. Local legislation is designed to prevent criminal activities like money laundering and other related financial crimes.
Possible Fines Could Amount to $35.8 Billion
The scale of the presumed breaches could mean very serious financial penalties for the exchange. Local reports cited that each breach may be fined 100 mln Korean won, which is roughly $71,500. If all 500,000 cases are considered a breach, Upbit could be made to pay fines amounting to $35.8 bln.
Obviously, the massive amount of financial liability raises several questions over the operational stability of the exchange in regard to its ability to address compliance gaps. This has also set a very bad precedent regarding how other crypto platforms in the country will be scrutinized.
Business License Renewal in Question
While authorities are investigating the evidence, business license renewal for Upbit will be put on hold. “The process will be highly complex as all suspected cases should be thoroughly examined”, said the FIU. “We can’t comment on the investigation in accordance with restrictions under the Special Financial Transaction Information Act”, quoted an official of Upbit.
Nothing is shared whatsoever, even internally within the company,” added the official, underlining the sensitivity of the probe.
Wider Implications for the Crypto Exchange
The implications of the findings from the FIU go far beyond some fines and compliance concerns. The FSC of South Korea, separately from this, began an investigation in October into the market dominance of Upbit, as well as its relationship to K Bank, upon which it depends for 20% of its total deposits. The chairman of the FSC had remarked on potential risks related to the planned IPO of K Bank, adding still more woe upon this beleaguered exchange.
Both these developments could bring a sea change in the operations at Upbit and its position within the highly competitive crypto market of South Korea.
