Increased Scrutiny of Cryptocurrency Exchanges in South Korea
The financial regulatory agency in South Korea is intensifying its scrutiny of local cryptocurrency exchanges through an impending series of penalties aimed at addressing lapses in anti-money laundering (AML) compliance. As the nation’s crypto industry expands rapidly, authorities are concerned that these shortcomings may compromise the sector’s integrity.
Upcoming Sanctions and Inspections
According to a report released on Monday, the Korea Financial Intelligence Unit (FIU) is gearing up to impose both institutional and personal sanctions, including fines, on key trading platforms found to be in violation of AML mandates. This action comes in the wake of inspections conducted across various exchanges, following a systematic first-in-first-out approach based on the timing of the inspections.
To date, the FIU has already sanctioned Dunamu, the company behind the Upbit exchange, and is now preparing to address compliance issues at other major platforms. Inspections have been completed for Upbit, Bithumb, Coinone, Korbit, and GOPAX, focusing on adherence to regulations such as Know Your Customer (KYC) protocols and the obligation to report suspicious activities. The majority of these inspections are finalized, with ongoing legal assessments and sanctions review.
Anticipated Penalties and Regulatory Response
Market participants anticipate that the subsequent penalties will reflect the findings from prior inspections, with sanctions likely issued in the same sequence. Following Dunamu’s inspection last August, subsequent evaluations took place at Korbit in October, GOPAX in December, Bithumb earlier this year in March, and Coinone in April. There is a possibility that the decision for Bithumb may be delayed due to an additional review of its order book practices.
The regulatory response is expected to parallel the measures taken against Dunamu, which included personal warnings to executives and a suspension on new customer activities for violations of the Special Financial Transactions Act. In February, the FIU decisively imposed a substantial fine of 35.2 billion won on the exchange. Analysts predict that similar infractions will be discovered across the affected exchanges, leading to fines that could accumulate into hundreds of billions of won, depending on the severity and quantity of each exchange’s violations.
Future Outlook and Tax Policy Discussions
With four exchanges still pending regulatory judgment, it is anticipated that the FIU may not conclude its sanctioning process by the end of this year. The bulk of the remaining sanctions are projected to finalize by mid-2024, during a period when global cryptocurrency markets are adapting to greater regulatory oversight.
This intensified enforcement coincides with ongoing discussions surrounding South Korea’s long-anticipated tax policy on virtual assets. Officials have cautioned that the nation remains ill-prepared to implement taxes by the proposed deadline of January 2027, citing significant infrastructure deficits. Following protracted political discussions and multiple delays, there are growing fears of a potential fourth postponement of the tax framework.
In a bid to encourage innovation within the sector, the ruling Democratic Party has also initiated a new cryptocurrency policy task force aimed at promoting growth within blockchain and digital asset sectors.
