South Korea’s financial regulator has identified a large number of suspected cases of Know Your Customer (KYC) violations during the business license renewal review process for UPbit, the country’s largest cryptocurrency exchange, according to financial industry sources on Thursday.
The Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) conducted an on-site inspection in late August 2024 as part of its review of UPbit‘s renewal application and discovered over 500,000 cases of potential non-compliance with KYC procedures, the sources said.
KYC is a process used to verify customers’ identities to prevent money laundering (AML) or counter-terrorism financing (CTF). Cryptocurrency exchanges require users to complete KYC procedures, including submitting identification documents and undergoing identity verification, before they can open a real-name account to deposit, trade, or withdraw their funds. Once this process is complete, the exchange is deemed to be compliant with AML and CTF regulations.
However, the FIU identified a number of cases where UPbit appeared not to have properly implemented these procedures. Examples include cases where account openings proceeded even though names or registration numbers were unclear or blurry on ID documents, making verification inadequate.
Accounts that were not properly verified could be used for money laundering or criminal activities.
An UPbit official declined to comment, saying that “matters involving FIU investigations cannot be shared publicly according to the Act on Reporting and Using Specified Financial Transaction Information.
“Information sharing is also strictly restricted within the company,” the official added.
Cryptocurrency operators are required to renew their licenses every three years under the Act.
The financial industry is paying keen attention to the situation, as it could impact the renewal of UPbit’s business license. The main question is how many actual violations will emerge from the FIU’s examination of the hundreds of thousands of suspicious cases initially identified.
The Act allows fines of up to 100 million won ($71,199) per case for violations of customer verification obligations.
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