The Korean FSC (Financial Services Commission) has reportedly handed Upbit, the largest cryptocurrency exchange in South Korea, a suspension notice on allegations of breaching anti-money laundering as well as Know-your-client mandates.
Impending Suspension of Upbit for half a year
As per Thursday’s report from Maeil Business Newspaper, South Korean FIU (Financial Intelligence Unit) alerted Upbit regarding the possibility of sanctions due to alleged breaches of the Financial Transaction Information Act. As per the allegations, Upbit has failed to uphold its anti-money laundering commitments and violated the KYC system. This might result in a business suspension lasting up to 6 months.
The imposed sanctions would prevent Upbit from registering new clients while the suspension is in effect, though existing clients would not be impacted. The report states that Upbit made it clear in a statement that “The sanction aims to restrict new customers from transferring cryptocurrency outside of the exchange for a defined period.”
The FIU has allowed Upbit until January 20 to submit an appeal. On the day following the submission deadline, the regulatory authority will carry out a hearing to finalize their decision and determine the penalty period.
Furthermore, Maeil Business pointed out that the sanctions on Upbit could potentially “disrupt other crypto exchanges” since it may be perceived as an attempt by financial authorities to rectify the illegal and unfair market practices commonly identified in the virtual asset industry since the implementation of the Virtual Asset User Protection Act last July.
The nation is currently transitioning into the second phase of South Korea’s new protective measures for crypto investors. The initial phase concentrated on protecting customer deposits and combating unfair trading practices, while phase two will aim to address the remaining regulatory blanks relating to the issuance and distribution of crypto assets.
Anticipation in Korea’s Crypto Sector Regarding Penalties
The crypto sector is reportedly keen to understand how the sanctions might impact Upbit’s business license renewal. As per the Special Money Act, Virtual Asset Service Providers (VASPs) are required to renew their licenses every three years.
The renewal process for Upbit’s license initiated in August led to debates in the financial circle regarding its prolonged timeline. As per earlier reports, an extensive investigation by authorities has impacted the renewal process, and the license expired in October.
During the review of the exchange’s license renewal, large-scale cases of violation of customer identification procedures were suspected by FIU. The financial authority identified around 600,000 cases where the KYC process was not correctly adhered to.
The crypto exchange reportedly opened numerous accounts without appropriate verification and failed to comply with anti-money laundering and Combating the Financing of Terrorism (CFT) requirements.
As per the reports, for each case, Upbit may face fines of up to 100 million won, approximately $68,000, which could cost $40 billion if all 600,000 cases were confirmed and fined.
Moreover, it was reported that FIU imposed sanctions after determining Upbit offered its services to unverified businesses overseas. South Korean regulations stipulate that local exchanges can only conduct transactions with registered service providers.
FAQ: What is Upbit?
Upbit is the largest cryptocurrency exchange in South Korea. The platform facilitates the exchange of digital assets and has an extensive user base.
FAQ: Why is Upbit facing suspension?
Upbit is facing suspension due to alleged violations of the Financial Transaction Information Act. They did not maintain their anti-money laundering commitments and violated the KYC system.
FAQ: What will be the impact of the suspension on Upbit’s customers?
The suspension will prevent Upbit from registering new users. However, the existing customers will not be affected by this suspension.
FAQ: What happens next?
Upbit has until January 20th to appeal against the suspension. After this date, the FIU will carry out a hearing to finalize their decision and determine the penalty’s duration.
