South Korea Halts Upbit Operations Over KYC Violations | Airdrop Alert Pro

South Korea’s Financial Services Commission (FSC) has ordered Upbit, the country’s largest cryptocurrency exchange, to temporarily cease operations. The FSC noted a breach of know-your-customer (KYC) obligations and is awaiting further clarification.

The move reflects the government’s increased efforts to enforce stricter anti-money laundering (AML) measures in the growing crypto market.

Regulator flags 700,000 KYC breaches

local media report The FSC’s Financial Intelligence Unit (FIU) issued an advance notice of sanctions on January 9. It cited more than 700,000 instances of Upbit exchange not properly performing KYC procedures.

According to the report, the lapses were discovered during an extensive review related to the renewal of Upbit’s business license, which has been under review since October 2024.

KYC process, by Virtual Asset User Protection Act Enacted in July 2024, the bill is critical to preventing money laundering and terrorist financing. Violations of these procedures are punishable by fines of up to 100 million won (approximately US$70,000) per case.

The report noted that FIU sanctions could include a suspension of operations for up to six months. This will specifically prevent Upbit from attracting new customers during the suspension. However, existing users can still trade on the platform.

“This sanction has not yet been finalized. If it is finalized, it will only suspend the recruitment of new users. Regardless of the sanction outcome, onboarded users will be able to trade freely.” A former Upbit employee joke.

The decision shocked the South Korean cryptocurrency industry, where Upbit dominates with over 70% market share. Other exchanges may begin to grapple with regulatory fallout, especially as financial intelligence units step up enforcement of compliance measures.

Meanwhile, the company was suspended after months of intense regulatory scrutiny. In mid-November, FIU flags Upbit for 600,000 potential KYC violationsfurther exacerbating concerns over its compliance practices. In addition, FSC has launched a antitrust investigation entered the exchange three months ago to investigate allegations of market dominance and unfair practices.

Potential Impact of Upbit Business License Risk

Upbit’s woes come as cryptocurrency adoption in South Korea hits an all-time high. More than 30% of the population is currently invested in digital assetsthere has been an unprecedented Transaction volume in 2024. It is unclear whether lax KYC enforcement has contributed to this surge, as insufficient controls may have facilitated easier access to trading platforms.

Upbit’s license expires in October 2024 and is currently under review. Regulatory violations such as KYC violations could jeopardize their renewal prospects and seriously harm the exchange’s operations.

This crackdown may also intensify South Korea’s already High Cryptocurrency Delisting Rate. The FSC’s strict compliance requirements have forced exchanges to delist a large number of tokens that do not meet regulatory standards.

Likewise, Upbit’s suspension could shake investor confidence in the exchange, given the platform’s dominance. Any prolonged disruption will also impact liquidity and trading volumes.

Going forward, South Korea will launch The second phase of its cryptocurrency regulatory framework Second half of 2025. The upcoming reforms aim to address flaws in the current system, with a focus on strengthening AML measures and tightening KYC protocols.

These reforms could clarify compliance standards and reduce the ambiguity exchanges currently face. However, stricter enforcement may also increase the operational burden on smaller platforms, potentially consolidating the market power of a few dominant players.