Upbit, is under fire as the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) has issued a notice to suspend its operations. The move comes amid allegations of serious breaches of anti-money laundering (AML) and know-your-customer (KYC) regulations.

Regulatory Crackdown on Upbit

The FIU’s investigation revealed significant lapses in KYC compliance, including over 500,000 accounts with incomplete or tampered identity documentation. Blurred and unrecognizable ID images raised red flags, prompting regulators to take action.

The suspension notice gives Upbit until January 20, 2025, to submit its response before a final decision is made on January 21. If enforced, the suspension could last up to six months, restricting new user registrations. However, existing users will retain access to the platform.

Potential Penalties

Under South Korea’s Special Financial Transactions Act, each violation could result in a fine of up to 100 million won (approximately $68,500). With over 500,000 questionable accounts under scrutiny, penalties could theoretically reach $34 billion.

Beyond monetary fines, the potential suspension could impact Upbit’s reputation and dominance in the market. The exchange has been pivotal in the South Korean crypto ecosystem since its launch in 2017, currently ranking as the sixth-largest globally by trading volume, with over $8 billion traded in the past 24 hours.

Monopoly Concerns

Regulators are also investigating Upbit’s market dominance and its ties with K-Bank, its exclusive banking partner. Upbit customer funds account for 20% of K-Bank’s deposits, sparking fears of a bank run if operations are halted.

This scrutiny adds to previous concerns about the exchange’s monopoly-like position in South Korea, where it handles a significant share of domestic crypto transactions.

What’s Next for Upbit?

While the suspension remains uncertain until the final ruling, the developments signal heightened regulatory oversight in South Korea’s crypto sector. The outcome could set a precedent for how authorities address compliance violations and market dominance in the future.

Upbit’s response to the allegations and its ability to implement necessary changes will be critical in determining its future in the increasingly regulated cryptocurrency landscape.