South Korea’s Financial Intelligence Unit is investigating cryptocurrency exchange Upbit for over 600,000 alleged KYC violations, raising concerns about its license renewal and potential fines totaling millions. The probe underscores the government’s strict compliance demands on virtual asset service providers.

Upbit Faces KYC Violation Allegations Amid License Renewal

Reports surface about Upbit, a prominent South Korean cryptocurrency exchange, suggesting serious violations of Know Your Customer (KYC) protocols as the company renews its license in the country.

According to a report from the Maeil Business Newspaper (MK), a local news agency in South Korea, the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) has found between half a million and one million possible Know Your Customer (KYC) violations on the Upbit exchange as of November 14th.

Alleged breaches of customer verification were discovered by the authorities while assessing Upbit's business license renewal, which could have an impact on the exchange's activities.

South Korea’s Tough KYC and AML Regulations

Cryptocurrency exchanges and VASPs in South Korea are required to implement stringent Know Your Customer (KYC) policies.

The government of South Korea attempted to control cryptocurrency trading in January 2018 by making it possible to trade only with bank accounts in people's true names. Following regulatory tightening, the FSC instituted a registration requirement for all cryptocurrency exchanges to guarantee they adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) standards.

The FIU allegedly found numerous instances where Upbit did not adhere to KYC requirements, as stated in the MK report.

Allegations of Lax Customer Verification

Users were able to register Upbit accounts with IDs that included blurred personal data such as names and registration numbers, which prevented regulators from correctly identifying them, according to the allegations, Cointelegraph reports.

Upbit may have problems renewing its business license and may be fined 100 million Korean won ($71,500) per case for the alleged violations of client verification.

Among the top cryptocurrency exchanges in South Korea and the world, Upbit has been around since 2017 and, according to CoinGecko, handles $2.2 billion in daily trades.

Anti-Monopoly Probe Adds to Scrutiny

It has been one month since the FCS allegedly stated intentions to investigate Upbit for possible anti-monopoly violations; the announcement of the claimed KYC difficulties follows that announcement.

K-Bank has been under scrutiny from local authorities for some time now because of its heavy involvement in cryptocurrency exchanges; this has led to Upbit's monopolistic inquiry. Approximately 70% of K-Bank deposits were associated with cryptocurrency in November 2023, according to local media.

IPO Withdrawal Highlights Market Challenges

As reported by Bloomberg, K-Bank decided to pull the plug on its $732 million Seoul IPO in the middle of October due to worries about its high valuation and its reliance on a cryptocurrency operator for funding.

Since 2022, no South Korean company has had a larger initial public offering (IPO).