South Korea’s leading cryptocurrency exchange, Upbit, has been notified of potential sanctions from the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) for failing to meet anti-money laundering (AML) obligations. This development was first reported by a local South Korean media outlet.

The FIU issued an advance notice of sanctions on January 9, citing violations of the Know Your Customer (KYC) system and the Specific Financial Transaction Information Act. If confirmed, the sanctions could include a suspension of Upbit’s business activities related to new customers for up to six months. Existing users, however, will be able to continue trading on the platform.

An Upbit representative clarified that the sanctions are expected to limit new customers from transferring virtual assets outside the exchange during the suspension period. With over 70% of the domestic virtual asset trading volume, Upbit’s operations are central to South Korea’s cryptocurrency market.‍

Details of the Sanctions Process

Upbit has until January 20 to submit its response to the FIU regarding the sanctions. A hearing is scheduled for January 21, during which the FIU will finalize the penalties, including the duration of the suspension.

The sanctions stem from findings during the FIU’s on-site inspections of Upbit’s business license renewal applications, conducted since August 2024. Authorities identified approximately 700,000 cases of non-compliance with KYC requirements. KYC processes, essential for AML and counter-terrorism financing (CTF), are designed to verify the identities of customers.

Upbit has also been accused of conducting business with unregistered overseas virtual asset operators, a violation of the Special Financial Transactions Act. The FIU determined that Upbit failed to verify the registration status of these foreign entities, though an Upbit official contended that it was challenging to ascertain whether overseas exchanges were unregistered on the blockchain.‍

Industry Implications and Broader Context

The sanctions come in the wake of South Korea’s Virtual Asset User Protection Act, which took effect in July 2024, reflecting the government’s efforts to address irregularities and tighten regulations in the virtual asset sector. The decision is also likely to influence Upbit’s future business license renewal process, which occurs every three years. Upbit’s license, renewed in October 2024, is currently under review.

The potential fines, which could reach up to 100 million won per instance of KYC violation, are another concern for Upbit and the broader industry. The outcome of the FIU’s decision is being closely monitored by other exchanges in South Korea, as it may set a precedent for stricter regulatory enforcement across the sector.