Why did Upbit Korea sue the Financial Intelligence Agency? What does the business suspension order cover?

Dunamu, the operator of Upbit, South Korea's largest cryptocurrency trading platform, filed a lawsuit with the Seoul Administrative Court on February 28 to revoke some of the business suspension orders implemented by the South Korean Financial Intelligence Agency (FIU). This move stems from FIU's regulatory measures against Upbit. Previously, FIU discovered many problems with Upbit during inspections, such as violating anti-money laundering (AML) and knowing your customer (KYC) standards, and trading with unregistered virtual asset companies.

According to FIU regulations, Upbit will be restricted from newly registered users' cryptocurrency recharge and withdrawal services within the next 3 months. The ban comes into effect on March 7, 2025 and ends on June 6. However, existing users are not affected and can continue to trade normally. Upbit believes that it has made necessary improvement measures, but some factors have not been fully considered by the FIU, so it decided to clarify its position through legal means.

Upbit exposed a lot of problems during the FIU investigation. As early as November 2024, FIU discovered up to 600,000 violations in Upbit customer identity programs. In January this year, another 700,000 KYC violations were exposed. These violations involve failures to meet the requirements of the customer's identity identification system, such as the ID card information submitted by the customer is vague but the account is still opened.

The South Korean government has been committed to strengthening supervision of the cryptocurrency industry to stabilize the anti-money laundering system and protect investors' rights and interests. With the rapid development of the cryptocurrency market in South Korea, the number of investors has continued to increase. According to statistics, more than 30% of the Korean population invests in cryptocurrencies, regulators have to strengthen control and ensure that the market operates in compliance. This regulatory action on Upbit is an important measure taken by the South Korean government under the framework of cryptocurrency regulation.

Upbit dominates the cryptocurrency market in South Korea, controlling more than 70% of the country's cryptocurrency market. Its huge user base and market share have made every move have a significant impact on the Korean crypto market. Even with regulatory challenges, Upbit is still a key player in the Korean crypto market, and its business development and compliance are attracting much attention.

In the face of FIU sanctions, Upbit apologized to clients on its website and admitted that it had completed the necessary rectifications directed by the financial regulator. Meanwhile, Upbit pointed out that the scope of sanctions may be adjusted due to the “specific facts and circumstances” not being fully considered, and through regulatory procedures, the current restrictions on new members are expected to be lifted or terminated.

Upbit's lawsuit against FIU may have a multifaceted impact on the South Korean cryptocurrency market. On the one hand, if Upbit wins the case, it may affect the implementation of South Korea's existing cryptocurrency regulatory policies, and other cryptocurrency trading platforms may reexamine their compliance strategies; on the other hand, if they lose, Upbit may need to further strengthen compliance construction, which will also sound the alarm for other cryptocurrency trading platforms in South Korea and prompt the entire industry to improve compliance level.

The industry is paying close attention to this incident, focusing on whether Upbit can successfully revoke some business suspension orders and the impact of this incident on the future direction of South Korea's cryptocurrency regulatory framework. In addition, how Upbit can improve compliance measures in the future to avoid similar problems from happening again is also a focus of industry attention. Many cryptocurrency investors are also closely watching the progress of the incident, worried that it will have an adverse impact on their own investment.

FIU has long been regulating Upbit. Since 2024, FIU has conducted multiple inspections on Upbit and found many violations. In addition to KYC violations, it also includes issues such as transactions with unregistered overseas virtual asset service providers. These violations led to FIU's continuous strengthening of Upbit's supervision and eventually issued this business suspension order.

Upbit's business suspension order has had a significant economic impact on itself and its related parties. Upbit's daily trading volume has dropped nearly 70% since January to about $4.6 billion. The restriction of new users' business may lead to hindering their future market share growth and reduced revenue. At the same time, companies that have cooperative relationships with Upbit, such as related payment institutions, blockchain technology suppliers, etc., may also be implicated and face the risk of a decline in business volume.

South Korea plans to launch the second phase of the crypto-regulatory framework in the second half of 2025. The Upbit incident may prompt regulators to pay more attention to details in the subsequent framework formulation and strengthen regulatory standards for cryptocurrency trading platforms, especially in anti-money laundering and customer identity identification. In the future, South Korean cryptocurrency trading platforms may face stricter scrutiny and higher compliance costs.

The international cryptocurrency market is highly concerned about the South Korean Upbit incident. Cryptocurrency regulators in other countries may learn from this, re-examine their own regulatory policies and strengthen supervision of cryptocurrency trading platforms. For international cryptocurrency investors, this event also increases investment uncertainty and may prompt them to adjust their investment strategies and choose investment platforms and regions more cautiously.