South Korea’s Financial Services Commission (FSC) has ordered the country’s largest cryptocurrency exchange, Upbit, to temporarily suspend operations due to violations of Know Your Customer (KYC) obligations. Local media reports over 700,000 instances of improperly implemented KYC procedures at Upbit, potentially leading to sanctions including a business suspension of up to six months and impacting the exchange's dominance in the South Korean crypto sector.

Upbit's struggles could jeopardize its business license renewal and exacerbate South Korea’s high crypto delisting rates, with potential implications for investor confidence and market liquidity.

The move reflects the government’s efforts to enforce stricter anti-money laundering measures in the growing crypto market. The Financial Intelligence Unit (FIU) cited the KYC violations during an extensive review tied to Upbit’s business license renewal. Violations of these procedures can attract fines of up to 100 million won (approximately $70,000) per case with potential sanctions including a business suspension of up to six months.

This development comes amid record-high crypto adoption in South Korea and impending regulatory reforms aimed at enhancing AML measures and tightening KYC protocols. Upbit’s license, which expired in October 2024, is currently under review and regulatory breaches such as KYC violations could jeopardize its renewal prospects, severely damaging the exchange’s operations.

The crackdown could also exacerbate South Korea’s already high crypto delisting rates, shake investor confidence in the exchange, and potentially impact liquidity and trading volumes. South Korea is set to introduce the second phase of its crypto regulatory framework in the second half of 2025, with potential implications for market consolidation.