Korea’s largest exchange Upbit was suspected of violating AML rules

What’s new? Upbit, South Korea’s largest centralized crypto exchange (CEX), was suspected of violating anti-money laundering (AML) customer identification (KYC) procedures. The Financial Intelligence Unit (FIU) at the Financial Services Commission (FSC) has identified between 500 000 and 600 000 potential KYC violations on the platform.

Material by Maeil Business Newspaper

What else is known? The alleged violations were discovered during customer verification for Upbit’s business license renewal decision. The exchange was found to have allowed accounts to be opened for users who provided fuzzy ID pictures that precluded identification.

The platform faces fines of 100 million Korean won ($71 500) for each case identified. It may also face problems in renewing its license.

Under local law, virtual asset service providers (VASPs) are required to establish strict KYC procedures.

In June, the country also enacted a crypto investor protection law that requires exchanges to keep customer funds separate from their own, provide 100% reserves for customer deposits, and have an insurance fund in case of a hack or crisis.

At the same time, the authorities launched a real-time monitoring system for crypto exchanges to track fraudulent activity.

Later, the Ministry of Finance reported that the exchanges would also be obliged to submit data on crypto transactions to tax and financial regulators.

As for Upbit, the accusations against it were made just a month after the FCS began investigating the exchange’s activities for violations of antitrust laws.

The regulator’s interest was piqued by Upbit’s close relationship with K-Bank, which local authorities have long scrutinized because of its crypto business. As of November 2023, up to 70% of K-Bank’s deposits were linked to cryptocurrency.

In mid-October, K-Bank withdrew its $732 million initial public offering (IPO) in Seoul amid concerns over the overvaluation of the business and reliance on crypto firms for funding. The IPO would be the largest in South Korea since 2022.

Spot trading volume on Upbit rose 4,3% to $47,52 billion in October, according to analyst Colin Wu. Website traffic rose 21% to 5,8 million. 96% of traffic comes from South Korea, with another 0,4% each from the United States and Vietnam.