South Korea’s largest cryptocurrency exchange, Upbit, has reportedly received a suspension notice from the Financial Services Commission (FSC) for allegedly violating anti-money laundering (AML) and know your customer (KYC) requirements.
Upbit faces a suspension of up to 6 months
Mail Business Newspaper, Thursday I mentioned South Korea’s Financial Intelligence Unit (FIU) has notified cryptocurrency exchange Upbit of potential penalties for alleged violations of the Financial Transaction Information Act.
According to the report, Upbit “failed to meet its anti-money laundering obligations, including violating the KYC system,” which could result in business being suspended for up to six months.
This action will prevent Upbit from registering new users while the suspension is in effect. However, existing customers will not be affected. “The penalty is designed to restrict new customers from transferring cryptocurrencies outside the exchange for a certain period,” the exchange explained in a statement cited in the report.
Upbit has until January 20 to file an appeal with the Financial Intelligence Unit, where the regulatory agency will hold a hearing the next day to finalize the decision and determine the length of the penalty.
Maeil Business also noted that the sanctions on Upbit could “cause other cryptocurrency exchanges to push back” as they could be “interpreted as a reflection of the financial authorities’ will to correct an illegal and unfair market system that has been flagged as a problem.” In the virtual assets industry since the enforcement of the Virtual Assets User Protection Act in July last year.
The country is entering the second phase of South Korea’s new cryptocurrency investor protection laws. The first phase focused on protecting customer deposits and tackling unfair trading practices. Meanwhile, the second phase will focus on filling regulatory gaps related to the issuance and distribution of crypto assets.
South Korea’s cryptocurrency industry awaits sanctions
The cryptocurrency industry is said to be interested in how the sanctions will affect Upbit’s business license renewal. Under the Private Money Act, virtual asset service providers (VASPs) must renew their licenses every three years.
Upbit’s license renewal process, which began in August, has raised questions among the financial community about its extended timeline. According to previous reports, the authorities’ intensive investigation affected the license renewal, which expired in October.
During the review of the renewal of the stock exchange license, the Financial Intelligence Unit found widespread cases of suspected violation of client identification procedures. The financial authority has identified about 600,000 cases where the KYC process was not followed properly.
The cryptocurrency exchange allegedly opened thousands of accounts without proper verification, and failed to comply with anti-money laundering and countering the financing of terrorism (CFT) requirements.
According to reports, Upbit could face fines of up to 100 million won per case, worth about $68,000, which could cost $40 billion if all 600,000 cases are confirmed and fined.
Furthermore, the report noted that the Financial Intelligence Unit imposed sanctions after determining that the cryptocurrency exchange provided its services to unverified companies abroad. South Korean regulations stipulate that local exchanges can only conduct transactions with registered service providers.
Total crypto market capitalization is at $3.43 trillion in the one-week chart. Source: TOTAL on TradingView
Featured image from Unsplash.com, chart from TradingView.com
