Upbit claims to have made improvements, but is still sanctioned by the FIU. What is the focus of the dispute between the two parties?

On February 25, the South Korean Financial Intelligence Agency (FIU) announced that it would implement regulatory measures on South Korea's largest cryptocurrency trading platform Upbit, to limit the cryptocurrency recharge and withdrawal services of newly registered users within the next three months. Upbit has previously stated that it has made necessary improvement measures, and the dispute between the two sides has arisen, and the focus is mainly on the following aspects.

Upbit said it has completed the necessary rectification in accordance with the instructions of financial regulators. But FIU clearly doesn't think so, judging from its actions to impose sanctions, it feels that Upbit's improvements have not met compliance requirements. In terms of customer identity identification (KYC), FIU inspected a large number of problems in 2024, such as up to 600,000 violations. Even if Upbit has made improvements, FIU may believe that its improvement measures are not implemented in place and fail to completely resolve the KYC program vulnerabilities, resulting in potential risks.

One reason for FIU sanctions is that Upbit violates local policies that prohibit exchanges from trading with unregistered crypto asset service providers (CASPs). Upbit may believe that in the complex blockchain environment, it is difficult to accurately determine whether the other party is an unregistered overseas exchange in advance. However, FIU, from a regulatory standpoint, determines that as long as there is a transaction fact with unregistered CASPs, it is a violation. Behind this is the difference in understanding the standards of trading policy implementation. Upbit feels that it has objective difficulties, while FIU emphasizes strict compliance with the rules.

Upbit believes that the sanctions are too wide and too heavy. The cryptocurrency deposit and withdrawal business for new users is restricted for 3 months, which has a huge impact on their business expansion. Upbit feels that considering its own improvements, it should not be subject to such severe sanctions. Based on the purpose of maintaining financial order and strengthening supervision of the crypto industry, FIU believes that such sanctions are necessary to serve as a warning to others and promote the entire cryptocurrency trading industry to be more standardized.

Upbit may believe that some factors were under-taking into account when making sanctions decisions. Perhaps Upbit has new compliance programs or improvements that have not been included in the sanctions by FIU. FIU may believe that it has comprehensively reviewed Upbit's various aspects, including its past violation history, market position, etc., and the sanctions decision is the result of a comprehensive trade-off. This different view on the comprehensiveness of regulatory review is also the focus of dispute between the two sides.

Upbit is South Korea's largest centralized cryptocurrency exchange and occupies an important position in the Korean cryptocurrency market. It ranks 23rd in the world according to the CoinGecko trust score. Upbit feels that it plays an important role in market stability, and excessive sanctions may affect market confidence and activity. Although FIU also understands Upbit's market position, it pays more attention to the fairness and seriousness of the rules and will not relax regulatory standards based on the size and influence of the exchange. The two have differences in their considerations on the market position and impact of the exchange.

In addition to business suspensions, Upbit also faces economic penalties and internal compliance scrutiny. Upbit may object to the amount of economic penalties, internal review methods and scope. It believes that it is already working hard to improve and the punishment should be relatively lighter. According to relevant regulations, FIU believes that economic penalties are necessary punishments for violations, and internal review is an important means to ensure its future compliance operations. The disputes between the two sides in this regard are also prominent.

Upbit has faced a lot of regulatory scrutiny over the past few months. Five months ago, he became the target of anti-monopoly investigation due to concerns about monopoly in the digital asset market, and faced temporary restrictions on KYC violations a month ago. Upbit believes that it has actively rectified and should not always be "bound" by past violations. FIU believes that past violations reflect their long-term lack of compliance awareness. Even if there is rectification, severe sanctions are needed to ensure that they will not commit the violation in the future.

Although the sanctions imposed by the South Korean Financial Intelligence Agency on Upbit on the surface is a handling of its violations, it involves many disputes between the two parties in terms of compliance improvement results, understanding of transaction policies, and degree of sanctions. How these disputes are resolved not only affect the future development of Upbit, but also affect the direction of the Korean cryptocurrency trading industry.