South Korea Fines Upbit, Bans Exchange from Opening New Accounts for 3 Months
Upbit has confirmed that it will work with authorities to review the ban, while existing customers can still trade normally.
More than a month after the South Korean financial regulator warned of the possibility of imposing a suspension order on South Korea's leading crypto exchange Upbit for violating anti-money laundering (AML) regulations and KYC loopholes, the Financial Intelligence Unit (FIU) officially decided on February 25 to fine and suspend Upbit from accepting new customers for 3 months, from March 7, 2025 to June 6, 2025.
FIU's sanctions against Dunamu, Upbit's parent company.
According to the FIU's official announcement, Upbit violated the regulations on transactions with unregistered crypto asset service providers (CASPs). Specifically, from August 28, 2022 to August 23, 2024, Upbit conducted a total of 44,948 digital asset transfer transactions with 19 CASP partners that were not licensed under Korean regulations.
Not only stopping at transactions with unregistered CASPs, after the investigation, FIU also discovered that Upbit had many serious violations in customer verification (KYC) and compliance with anti-money laundering (AML) regulations, creating major loopholes in the exchange's financial monitoring system.
During the period from October 6, 2021 to September 30, 2024, Upbit processed 34,477 identity verification (KYC) requests but made numerous errors including accepting black and white copies of IDs, using screenshots instead of original documents, and authenticating identities without fully verifying customer data. These errors allowed 15,496 customers to make transactions without going through the full verification process.
In addition, 5,785 customers were approved without checking the correct address, of which 3,545 were still able to make transactions without completing verification. Not only that, Upbit also committed serious violations in verifying driver's license information when from October 6, 2021 to August 15, 2023, the exchange skipped the step of checking the security code on the card, resulting in 67,684 customers being allowed to trade without sufficient authentication information.
In addition, FIU also pointed out that Upbit did not require customers to update their KYC when it expired, causing 9,066,244 re-verifications to be performed without valid documents, of which 3,121,761 accounts continued to trade even when the verification information had expired.
More seriously, Upbit's anti-money laundering (AML) control system was assessed as lax, as it failed to prevent transactions with signs of abnormality. Some typical cases include depositing a large amount of cryptocurrency and then immediately selling it to withdraw cash, or depositing a large amount of fiat to buy crypto and then immediately withdrawing it to another platform.
Notably, the FIU confirmed that Upbit failed to report 15 suspicious transactions, even after law enforcement issued an investigation warrant.
These vulnerabilities led the FIU to view Upbit as an unregulated platform with a high risk of financial fraud and money laundering, especially since South Korea has strict regulations requiring all CASPs to register and comply with anti-money laundering (AML) and consumer protection regulations.
Immediately after being sanctioned by the FIU, Upbit quickly issued an official announcement on its website, apologizing to customers for the inconvenience caused by the ban.
The exchange stressed that the suspension only applies to new customers, while existing users can still fully enjoy the services as before. Upbit reassured customers by stating:
“These sanctions are subject to change through appropriate legal proceedings. If the ban is suspended or lifted, new customers will also be able to continue trading on Upbit without restrictions.”
In addition, Upbit affirmed that it has proactively made the necessary adjustments as requested by financial authorities and is currently actively working with authorities to reassess the scope of the ban, with a view to coming up with a solution as soon as possible.
Upbit is currently the largest cryptocurrency exchange in South Korea, accounting for more than 80% of the domestic crypto trading market share with a 24-hour trading volume of more than $5.1 billion. This sanction could have a major impact on Upbit's business, creating a wave of investors moving to rival exchanges such as Bithumb, Coinone, Korbit.
Trading volume on Upbit in the past 24 hours. Source: CoinGecko (February 25, 2025)
On the Korean side, the land of kimchi is famous for being a country with strict laws on crypto, only granting operating licenses to a few qualified exchanges. When registering an account on domestic exchanges, citizens of this country must provide ID (proof of identity) and complete KYC to be allowed to trade.
